Archive for the ‘Discussion’ Category

How Swiss are trying to protect their traditional banking from the digital banking force?

January 19, 2018

Interesting piece by Marcia Christoff-Kurapovna.

There is some EU directive against which has unsettled Swiss bankers:



Zonia Baber: The woman who transformed US geography education

January 19, 2018

Nice tribute to a Professor of Geography:


South African central bank can be liquidated but no provision for nationalisation in its Act..

January 18, 2018

I had blogged about how the how the South African government is planning to nationalise Central Bank which till date is privately owned.

Prof Jannie Rossouw of University of the Witwatersrand looks at the matter.

He says the shareholders hardly play much role anyways. The central bank policies are mainly run by the Governor and Dep GOvernors who are appointed by the President. The sahreholders can elect 6 of the 13 members and get dividends not more than 10% per annum.

He says nationalisation will require change in the Act. Currently, the Central Bank Act talks about liquidation not nationalisation. Ultimately it all boils down to law:


RBI: Rs 10 coin is legal tender..

January 18, 2018

Yesterday, RBI issued a press release saying Rs 10 coins are legal tender. They also shared links to 14 types of Rs 10 coins with all being legal tender:


Are Indian equity markets closest to a perfect competition experience and why economists should practice their own laws?

January 17, 2018

This is a nice lecture by Dr M.S. Sahoo currently the Chairperson of Insolvency and Bankruptcy Board of India. It is the annual RH Patil lecture organised by NSE. There is another RH Patil Lecture organised by CCIL which was given by Dr YV Reddy.

Dr Sahoo covers large ground in this lecture right from institutions to Dr RH Patil to new Role of economists:

Dr. Patil was one of India’s leading practitioners of Economics, particularly of Financial Economics. More importantly, he built a set of fine institutions of post-liberalisation India, yet remained largely an unsung hero.

In this memorial lecture for Dr. Patil, I wish to touch upon the following four aspects to trace the provision and promotion of economic freedom since early 1990s:
I. Dr. Patil as an institution builder;
II. Context to the Institutions built by Dr. Patil;
III. Ongoing reforms in the financial markets; and
IV. A possible new role for economists.

Unsung surely. And not just now.

I recall attending a finance conference in the financial capital where Dr R.H. Patil wad to give the last lecture. He spoke on Corporate Bonds and was a shame that the hall was empty by then. More so, as lack of corporate bond market remains a favorite topic and yet no one wanted to hear the person who had then chaired a committee to look into the matter.

Anyways, Dr Sahoo points how capital market institutions built the foundations of India’s equity markets using perfect competition ideas!:

The economists often praise the virtues of perfect competition; they theorize models assuming perfect competition, but rarely, have they seen or experienced it. The search for perfect competition has proved to be as elusive as ‘search in a dark room for a black cat which may not be there’. The institutions (screen based trading system and demutualisation of stock exchanges) built by Dr. Patil, who in a sense epitomized a practising economist, probably gave us the closest experience of a perfect competition.

So what are the characteristics of perfect competition? Let us examine.

(a) Free entry and free exit: A person is free to enter into and exit from the market – an investor can buy securities and equally freely, sell securities, a broker can register and surrender registration, a company can list and delist securities; etc. – they have unfettered freedom to get in and get out.
(b) Large number of market participants: There are numerous investors – domestic and foreign, retail and institutional, small and big – who buy and sell securities simultaneously. So also, there are numerous issuers of securities and numerous intermediaries (service providers).
(c) Perfect information: Every participant has almost perfect information. Every issuer makes a disclosure of full and accurate information about itself, its securities, and the rules governing transactions of such securities, based on which investors take informed decisions and assume responsibility for the same. Issuers also make continuous disclosures as long as their securities remain listed on stock exchanges. Intermediaries are also obliged to make disclosures. Everybody is a price taker: No participant has the market power to set the price of the securities, or even influence the price of securities. The institutions built by Dr. Patil provided the foundations of a market economy and allowed the invisible hands of the market to determine the outcomes.

There is more in the speech.

In the end, he has some advice for economists:

There is an important distinction between civil liberty and economic liberty. Civil liberty is almost entirely black and white; while economic liberty is many shades of grey. It is so because the economic liberty is the domain of both economics and law. The determination of an issue relating to economic liberty in a given context requires that all possible legal perspectives are taken into account from all possible economic angles. Let me illustrate this with a story. Four persons who had received show cause notices from the competition authority were discussing as to what caused them their predicament. The first person said he charged a price higher than others in the market and has been accused of abuse of market power. The second one said he charged a price lower than anybody else and has been accused of predatory pricing and hurting competition. The third one said he charged zero price and has been accused of creating entry barrier. The last one said he charged the very same price as everybody else and has been accused of cartelisation.


The determination of context – the determination of abuse, dominant position, relevant market, etc. – requires institutions to be adept in appreciating and using economic inputs and tools. The regulators and tribunals should have access to such inputs and tools while determining an issue under economic laws. The easiest means of access is representational services. Along with other professionals such as chartered accountants, cost and management accountants, company secretaries, and advocates, economists should be allowed to provide representational services. In addition to teaching, research, consultancy, analysis, etc. economists could consider practising economic laws. In the long run, academics should produce economic lawyers or legal economists who specialise in economic law practice. This will go a long way towards fostering economic liberty. 

Superb stuff…

The Act that established the US Treasury Department…

January 17, 2018

On 2 Sep 1789, this Act led to establishment of US Treasury Dept:

An Act to establish the Treasury Department.(a)
Section 1. Be it enacted by the Senate and House of Representa­tives o f the United States o f America in Congress assembled,
That there shall be a Department of Treasury, in which shall be the following offi­cers, namely: a Secretary of the Treasury, to be deemed head of the department; a Comptroller, an Auditor, a Treasurer, a Register, and an Assistant to the Secretary of which assistant shall be ap­pointed by the said Secretary.
How law (or lack of law) is behind most organisations and its decisions…
These Archives hosted at St Louis Fed is a treasure. Will be posting from this often…

The Federal Reserve and central bank cooperation over the past 100 years…

January 17, 2018

Superb speech by Simon Potter of NY Fed. It is at the occasion of Centennial of the Federal Reserve’s US Dollar Account Services to the Global Official Sector. It is these account services which led to both US Dollar and Federal Reserve play begin to play a central role in world economy.

As expedient as the accounts were for wartime needs, the historical records show they were also motivated by ambitions of the Fed’s first leaders to establish the dollar as a major international currency and, for Benjamin Strong, to establish New York as a great international financial center to rival London. They had their work cut out for them.

By 1914, while the U.S. was already the world’s largest economy and trading nation, its banking system remained curiously parochial and the dollar was not a major international currency. In fact, American firms continued to finance their trade almost entirely with credits from foreign banks, a source of resentment, with Paul Warburg, the first Federal Reserve vice chairman, referring to the annual acceptance fees paid to London banks as a form of “tribute.” 

With the passage of the Federal Reserve Act in 1913, some of the constraints on the emergence of a robust dollar trade financing market were removed and the newly established U.S. central bank could take a more active role in nurturing and backstopping a nascent dollar acceptance market, which it did. These efforts included buying dollar acceptances for foreign central bank accounts at competitive discount rates and providing guarantees, for a small fee, on payments at maturity of acceptances bought for these accounts.

These actions helped to spur the dollar’s emergence as an important international currency, with dollar acceptances viewed as an attractive reserve asset by the 1920s.

The early accounts also represented tangible links of cooperation among major central banks, with much of this cooperation centered on efforts to maintain or restore the international gold standard in the aftermath of the First World War.11 The reciprocal relationships enabled central banks to buy and sell foreign exchange to influence credit conditions in each other’s markets with the aim of regulating cross-border gold movements. In this, central banks of the time viewed acting through foreign central bank correspondent accounts as preferable to acting through private intermediaries.

Now this Account Service pretty much controls world’s financial system:

h the Central Bank and International Account Services area of the New York Fed, the Federal Reserve today offers banking and custody services in dollars to just under 180 foreign central banks and monetary authorities, approximately 18 international multilateral financial institutions, and a number of ministries of finance or national governments. The suite of services offered to these account holders is a basic package of dollar-denominated and gold services in three general areas: transfer and custody services for gold and fixed income securities; dollar-based payment services; and dollar-based cash management and investment services.

Every day, New York Fed staff process on average hundreds of billions in transaction volumes on behalf of foreign official account holders. In total, approximately $3.6 trillion of dollar-denominated securities and cash deposits are held by foreign official account holders at the New York Fed, representing about half of the world’s official U.S. dollar reserves and one-third of the world’s total official FX reserves.

There is also discussion from the archival records on how the service came into being:

It was left to Governor Benjamin Strong of the New York Fed to journey to Europe in the spring of 1916 to personally negotiate the early account agreements, allowing him to forge close personal relationships with European central bankers, most famously with the Bank of England’s Montagu Norman, or as Strong would come to call him: “my dear Monty.”4 While these initial discussions in 1916 did not lead immediately to agreements, partly owing to U.S. observance of neutrality, the groundwork had been laid such that by the time the U.S. entered the War in April 1917 the arrangement with the Bank of England could be executed rapidly.

The historical records show that the establishment of this first account agreement with the Bank of England involved a minor diplomatic faux pas, known as the British Treasury bills episode. President Wilson, having won reelection in 1916 on the claim of having kept the U.S. out of the Great War and observing strict neutrality, had directed the Federal Reserve Board in Washington to issue a clear-cut warning to U.S. banks not to invest in a pending large placement of British Treasury bills in the U.S. market. The immediate and worldwide effect of the statement was to give the impression that the U.S. had “broken with Britain,” an impression which officials were soon scrambling for ways to counteract.5 The result was the Federal Reserve Board’s decision, contrary to the terms of the account negotiations and to the consternation of the New York Fed, to unilaterally announce to the public the account agreement with the Bank of England. The whole episode spoke perhaps to the Fed’s inexperience in matters of delicate international financial diplomacy. In any event, the Bank of England magnanimously let the matter slide-noting that mistakes “may arise even in the best regulated families”-and the account agreement was executed on May 3, 1917 and operationalized on June 20, 1917.

Superb stuff…Lots of global history in this speech…


Why Is Japan Populist-Free?

January 16, 2018

Ian Buruma in this piece:

For demagogues to be able to stir up popular resentments against foreigners, cosmopolitans, intellectuals, and liberals, there must be wide and obvious financial, cultural, and educational disparities. This was the case in Japan in the mid-1930s, when military hotheads staged a failed coup aimed at bankers, businessmen, and politicians who in their view were corrupting the Japanese polity.

The coup was supported by soldiers who had often grown up in poor rural areas. Their sisters sometimes had to be sold to big city brothels for their families to survive. The Westernized cosmopolitan urban elites were the enemy. And public opinion was largely on the side of the rebels.

Contemporary Japan may have its flaws, but it is now much more egalitarian than the US, India, or many countries in Europe. High taxes make it hard to pass on inherited wealth. And, unlike in the US, where material prosperity is flaunted, not least by Trump himself, the most affluent Japanese tend to be discreet. Japan has surpassed the US as a country of the middle class.

Resentment feeds off a sense of humiliation, a loss of pride. In a society where human worth is measured by individual success, symbolized by celebrity and money, it is easy to feel humiliated by a relative lack of it, of being just another face in the crowd. In extreme cases, desperate individuals will assassinate a president or a rock star just to get into the news. Populists find support among those resentful faces in the crowd, people who feel that elites have betrayed them, by taking away their sense of pride in their class, their culture, or their race.

This has not happened in Japan yet. Culture may have something to do with it. Self-promotion, in the American style, is frowned upon. To be sure, Japan has a celebrity culture, driven by mass media. But self-worth is defined less by individual fame or wealth than by having a place in a collective enterprise, and doing the job one is assigned as well as one can.


How a Bitcoin System is Like and Unlike a Gold Standard

January 16, 2018

Larry White has a post:

In what important respects are the Bitcoin system and a gold standard similar? In what other important respects are they different?

Bitcoin is similar to a gold standard in at least two ways. (1) Both Bitcoin and gold are stateless, so either can provide an international base money that is not the creature of any national central bank or finance ministry. (2) Both provide a base money that is reliably limited in quantity (this is the grounding for Selgin’s characterization), unlike a fiat money that a central bank can create in any quantity it likes, “out of thin air.”

Bitcoin and the gold standard are obviously different in other ways. Gold is a tangible physical commodity; bitcoin is a purely digital asset. This difference is not important for the customer’s experience in paying them out, as ownership of (or a claim to) either asset can be transferred online, or in person by phone app or card. The “front ends” of payments are basically the same nowadays. The “back ends” can be different. Gold payments can go peer to peer without third-party involvement only when a physical coin or bar is handed over. Electronic gold payments require a trusted vault-keeping intermediary. Bitcoin payments operate on a distributed ledger and can go peer-to-peer electronically without the help of a financial institution. In practice, however, many Bitcoin transactions use the services of commercial storage and exchange providers like Coinbase.

The most important difference between Bitcoin and gold lies in their contrasting supply and demand mechanisms, which give them very different degrees of purchasing power stability. The stock of gold above ground is slowly augmented each year by gold mines around the world, at a rate that responds to, and stabilizes, the purchasing power of gold. Commodity (non-monetary) demands also respond to the price of gold and dampen movements in its value. The rate of Bitcoin creation, by contrast, is entirely programmed. It does not respond to its purchasing power, and there are no commodity demands.


Good way to think about the two systems…

Does media shape people’s views or merely represents them?

January 15, 2018

Hajrah Mumtaz has a piece on Pakistan TV shows. It applies to most countries.

THE people of this country love watching television. In a population of some 200 million people, according to official estimates some 65 per cent of people, women and men in comparable numbers, watch drama channels (as delineated from those dealing with news and current affairs).

The media can hold a mirror up to society, showing a society what it is, or it can show a society what it can and should aspire to be. This is an old debate amongst media circles, a question of interpretation and sometimes even professional/ philosophical ideology to which there is no definite or ‘correct’ answer.

Rote education has played its role:


When banks mentioned paid-up capital on their notes…Canada edition

January 15, 2018

JP Koning keeps coming up with some amazing insights.

His recent tweet has this picture of an old Bank of Montreal note (when banks issued their own notes). Note the size of the note. He also points how the banks mentioned their paid up capital on the note to signal their financial health:

To this, Stephen Williamson clarified:

Replying to 
It’s not so much advertising financial health, as advertising how much the shareholders are on the hook for. There was double liability, so if there is $12 million in paid up capital, that’s an extra $12 million that can pay off the noteholders if the bank goes under.
This double liability clause started in Canada in 1871.  Not sure whether this was used in other countries as well. In India, banks could print their own notes only till 1861 after which unified currency circulated in British India. There were some princely states like Hyderabad but again it was a State currency not requiring printing of paid-up capital on the notes.
So much one can learn by just noting the changes in design and writing on currency notes..Thanks again JP!

Central banks should also be judged by their quality of research/work….(Why central banks do not blog?)

January 15, 2018

Nice article which says we should move beyond just talk of institutions being independent. Rather institutions should be assessed on the quality of their work.

In our contemporary lexicon ‘independence’ – for instance of a government body – is usually a Good Thing.

But if we’re thinking of independence as a good thing for an agency to have – for instance, the Productivity Commission (PC) – it’s not sufficient. It also needs to be used by the agency, and the agency must be worthy of it by virtue of the quality of its work. The odd thing is that so many such agencies have such a strong flavour of bureaucracy about them. There’s the same cultural emphasis on what I call being a sound chap. I’ve come to think that this is a kind of natural product of groups. They are … well … groupish.

They acquire the same kinds of social dynamics you notice at high school when nearly everyone wants to be one of the cool kids. But in government there’s an institutional basis to this also. Even if they have their own act, even if their independence is prized in our public culture, most government statutory agencies are tethered to the career public service. Their officers enjoy the privileges of the Commonwealth public service career structure. So we should not be so surprised that those in such independent agencies think like bureaucrats. And there are few things more important to bureaucrats than appearing to be in control. To be thought of as sound chaps.
The institutions need to move beyond their comfort zone. In this the author differentiates between central banks of Australia and England:


Sandeep Sekhri: The Indian vegetarian who makes millions selling steaks in Hong Kong

January 15, 2018

Interesting profile of Mr Sandeep Sekhri whose food company Dining Concepts, has become synonymous with HK’s dining scene.

Sandeep Sekhri likes to defy the odds. Maybe that is why he is such a fan of Rafael Nadal, who, as an unheralded teen tennis player from Spain, shocked the world by winning the 2005 French Open title. Sekhri doesn’t even play tennis, but he still goes to the Roland-Garros tournament every year.

It might also explain how the Indian immigrant to Hong Kong, a vegetarian for three decades, could sit atop a restaurant business that includes several popular steakhouses.

Sekhri owns 28 high-end restaurants and bars across his adopted home, where he and his company, Dining Concepts, have become synonymous with the city’s dining scene.

Four out of five top private banks are majority owned foreigners, benefiting foreign savers….

January 15, 2018

It is interesting to read this interview of Uday Kotak which is saying many things.

He says we have allowed high foreign ownership in Indian companies and banks too quickly. Well globalisation runs both ways. We celebrate any small victory when Indians buy companies abroad. Same applies in case of our companies too. This is an interesting variety of protectionism, if one can call it that.


The role of trade and information technology in the decline of merchant guilds

January 15, 2018

Fascinating piece by Prateek Raj.

He says merchant guilds declined as those outside the guild started to trade. The key to this shift was printing technology which shared information about players:


The burden of free and cheap parking on India’s cities

January 12, 2018

I was just reading this piece on how so called Parking sharks charge Rs 10 for parking 2-wheelers in a Bangalore locality. Its is higher than. Rs 5 the government has mandated:


Brief history of airport chapels in US..

January 12, 2018

Did not know that airports have chapels too.

Prof Wendy Cadge of Brandeis University gives us a tour:


Why the sartorial choices of Salafi clerics sparked a debate on morality in Nigeria?

January 11, 2018

Amazing things keep happening around the world.

There is a saying that one should follow what he/she preaches. It can be altered to one should wear what one preaches as well.

This article by Prof Moses Ochonu (Professor of African History, Vanderbilt University) is precisely on this. He writes on how two Salafi clerics of Nigeria who wore so called “western clothing” are in the thick of a storm:


What Nationalism really is (and why it matters) and 5 types of nationalism

January 11, 2018

Alex Nowrasteh of Cato Institute in this must read piece writes on one of the major global themes: rise of nationalism and cries of making their country great again.

From President Donald Trump to the rise of new nationalist political parties in Europe to a general resurgence of the term in recent years, nationalism seems to be on the march.

Nationalism is a political movement that has made major inroads in recent years while preaching a message of immigration restrictionism, trade protectionism, and a stronger government devoted to defending citizens from (mostly) imaginary harms. But besides some policy positions and a style of governance, there is no good working definition of nationalism widely used in popular discourse, with almost no attempt to distinguish it from patriotism.

Most research on nationalism is terrible.  My base assumption was that nationalism must be something more than crude jingoistic tribalism, but few ventured beyond that. Those reasons prompted me to read several thousand pages on the topic – and I learned quite a bit. Below are some lessons I learned and a useful taxonomy of different types of nationalism.

He points to five kinds of nationalism:

The third thing I learned is that there are at least five types of nationalism. Obviously, the nationalism of Edmund Burke or George Washington is different from the blood-worshipping nationalism of Adolf Hitler, but only the late American historian Carlton J.H. Hayes divides these types of nationalism into a useful five-part taxonomy:

  1. Humanitarian Nationalism: An outgrowth of Enlightenment philosophy influenced by Henry BolingbrokeJean-Jacque Rousseau, and Johann Gottfried Herder, who all emphasized local self-rule through democratic forms of government based on the peculiar characteristics of each nation (body of people), as opposed to the large multi-ethnic empires that then dominated Europe.
  2. Jacobin Nationalism: A state ideology adopted by the revolutionary French government to solidify its hold on power. Its four characteristics were suspicion and intolerance of internal dissent, heavy reliance on force and militarism to attain government goals, fanatical support for the state, and a missionary zeal to spread their nation.
  3. Traditional Nationalism: A brief nationalist reaction to the Jacobins in favor of the status quo ante bellum. This is the most conservative type of nationalism. Edmund BurkeFriedrich von Schlegel, and Klemens von Metternich were the most well-known supporters of this brief style of nationalism. This form of nationalism did not survive long, as the cultural changes begun by the Industrial Revolution undermined it.
  4. Liberal Nationalism: This style of nationalism is midway between the Jacobin and Traditional varieties. It emphasizes the absolute sovereignty of the national state but, in seeming contradiction, also seeks to limit the power of the government to interfere with individual liberty by proclaiming the goal of the state to be to protect individual liberty and provide public goods. If you have ever taken an economics class, the ideal of liberal nationalism comes closest to what economists think of as the proper role of the state. If you also see the tensions between absolute sovereignty and the protection of individual liberties, then the next phase of nationalism should be unsurprising.
  5. Integral Nationalism: This stage of nationalism centers the nation and its state in the life of all citizens. Instead of a state being committed to supplying public goods to citizens, this form of nationalism emphasizes individual sacrifice for the benefit of the nation and its government. It also frequently embraces blood-worship (the Latin root of nationalism is natio, meaning tribe, ethnic group, or division by birth) and seeks to expand the state to include all co-ethnics living in other territories. Hayes summarized this form of nationalism as intensely “anti-individualistic and anti-democratic”, where all other loyalties are absorbed into loyalty to the national state and a right-makes-right ideology.


Differentiates between patriotism and nationalism:

The second thing I learned is that there is no simple division between patriotism and nationalism, but George Orwell’s division probably comes the closest to one when he wrote:

Nationalism is not to be confused with patriotism. Both words are normally used in so vague a way that any definition is liable to be challenged, but one must draw a distinction between them, since two different and even opposing ideas are involved. By ‘patriotism’ I mean devotion to a particular place and a particular way of life, which one believes to be the best in the world but has no wish to force on other people. Patriotism is of its nature defensive, both militarily and culturally. Nationalism, on the other hand, is inseparable from the desire for power. The abiding purpose of every nationalist is to secure more power and more prestige, not for himself but for the nation or other unit in which he has chosen to sink his own individuality.

In other words, patriotism is a love of country while nationalism is the love of country combined with a dislike of other countries, their peoples, or their cultures. Nationalism also extends to the dislike of fellow citizens who are different, which is why nationalists frequently support nation-building campaigns of government schooling to assimilate citizens to a state-determined norm, national languages, and other means of creating ethnic, religious, or other forms of uniformity.


He says nationalism is the second deadliest political ideology:

The sixth thing I learned is that nationalism is the second deadliest political ideology of the 20th century after communism. The late political scientist RJ Rummel estimated the number of people killed by different governments over time. Communist governments killed about 150 million people in his estimation. Nationalists killed about 92 million. Those 92 million include those killed by the Chinese Nationalists, Japanese Nationalists, Turkish Nationalists, and by the European Nationalists in the colonial era. I excluded slaughters committed by pre-communist Russians, Mexicans, and Pakistanis as they were less outwardly nationalistic than the other regimes.

In the end:

Nationalism is a simple and relativist political ideology that holds tremendous sway with millions of voters and many governments. Nationalism’s adaptability to most local conditions allows it to thrive, especially when supported by a government intent on expanding its own power domestically and internationally. It’s an attractive ideology for political leaders, as it provides a ready-made and widely-believed justification for increased political power in order to Make the Nation Great Again.

People should be very very careful when governments try and sway beliefs (read votes) using ideology of Nationalism . But most of the times we remain gullible and get swayed only to repent later. And the cycle continues..

RBI clarifies on the IDRBT paper on Aadhaar..

January 11, 2018

It is not very often that we see regulators reacting to media reports and research. Earlier, SEBI used to issue clarifications on media reports which was discontinued later.

So it is interesting that RBI has issued a clarification on a recent paper published by IDRBT.  The paper was written by Mr S. Ananth who is a visiting faculty at IDRBT and does not work in RBI. But still it was something to see a public institution like IDRBT to publish such a paper as the institute is established by RBI.

The media reported the research paper as one from RBI/RBI established institute and so on. RBI clarifies:


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