Archive for the ‘Discussion’ Category

Hajj: how globalisation transformed the market for pilgrimage to Mecca

August 17, 2018

Seán McLoughlin  (Professor of the Anthropology of Islam, University of Leeds) has this fascinating piece:

More than 2m Muslims are currently gathering in Mecca ahead of the annual Hajj, which begins on August 19. As long as they are fit and financially able, the pilgrimage is an obligatory act of worship that followers of Islam owe to God once in their lifetime. Reenacting the faith-testing ordeals of Ibrahim (Abraham, the Biblical founder of monotheism) and his family, Muslims believe that an “accepted Hajj” will cleanse them of all their sins. Their hope is to return home as pure as the day they were born.

But until the introduction of modern transport systems, most Muslims beyond the Arab world had little expectation of completing this fifth and final pillar of Islam. Before the mid-1950s, the number of overseas pilgrims rarely exceeded 100,000 and modern Saudi institutions were still developing. Yet by the early 2000s, the total number of Hajj pilgrims had passed the 2m mark, reaching a recent peak of just over 3m in 2012.

New opportunities for pilgrimage in the jet age have put immense pressure on the infrastructure of Mecca. Hundreds have lost their lives during periodic disasters including fires and stampedes, most recently in 2015. Undoubtedly, the Saudi authorities have invested huge sums in continually seeking to improve facilities and the overall management of the Hajj.

Hajj organisers and guides I have interviewed compare overseeing the pilgrimage to hosting the Olympics every year.


Historians of Indian Railways point how the railways helped Hindus in India visit pilgrim centres across the country.


How France continues to dominate its colonies via the currency system

August 17, 2018

Fascinating piece on The Minskys Blog:

French geopolitics in Africa is interested in natural resources. Initially, the franc zone was set as a colonial monetary system by issuing currency in the colonies because France wanted to avoid transporting cash. After these countries gained their independence, the monetary system continued its operation and went on to include two other countries that were not former French colonies. At present, the CFA franc zones are made up of 14 countries. The fact that even today the currency of these regions is pegged to the euro (formerly French franc) and that reserves are deposited in France shows the subtle neocolonialism France has been pursuing unchecked. It is a currency union where France is the center and has veto power. This is supported by African governing elites who rely on the economic, political, technical, and sometimes military support provided by France. It is no wonder then that these former colonies are not growing to their full potential because they have exchanged development through sovereignty for dependency on France. This article investigates the set up of the CFA franc zones, its ties to French neocolonialism and its ability to further breed dependency in the former colonies of West and Central Africa.

Why French continue to dominate compared to say British?


Tourists snap up ‘zero euro’ banknotes with Karl Marx’s image

August 17, 2018

Did not know that ECB permits printing of zero euro banknotes as souvenirs. They feel same as Euro notes but with zero value as they are not legal tender and cannot be tendered as currency.

They also printed a zero euro note with Marx’s image. And it is selling like hotcakes:


How 250 year old Greek bell makers defied the global financial crisis

August 17, 2018

Nice video of of the Galanopoulos brothers who are one of the two surviving bell-makers in Greece. Their family has been in the business of making bells since 250 years. Most other bell makers in Greece failed barring them and another one in Athens.

Am wondering whether the financial crisis led more demand for church services as people looked to God in case of despair. This led to rise in demand for their bells? But then other bell makers should have survived too..

Using CPI vs RPI: Politics over using measures of inflation in UK…

August 16, 2018

Nice piece on the issue. Despite being deeply flawed, UK still uses Retail Price Index as a measure of inflation.

RPI overstates inflation and thus is disliked:


Inequality is highest in the Middle East..

August 16, 2018

Facundo Alvaredo, Lydia Assouad and Thomas Piketty relook at the inequality in Middle East using different sets of data. They say the region has highest inequality amidst the other regions in the world:


How banks migrated during Partition?

August 15, 2018

Happy Independence Day to all.

On this day, I am revisiting this article I wrote for Mint last year where I looked at how banks migrated during Partition.

I wanted to work further on the topic and track how the banks fared post Partition and the challenges they faced. But just could not find enough resources and even lacked time to work on the ideas.

Then there is this earlier post on how the break-up of the Indian monetary union was managed as RBI had to manage the currency for both India and Pakistan. This was quite an event and is such a pity that monetary scholars have barely paid any attention to this.  This requires a careful examination of several aspects of monetary economics especially in context of discussions on the European Monetary Union.

The Partition is mostly studied from a political lens for obvious reasons. But the economic, monetary and financial lenses are as intriguing and have several lessons for today.

India vs Indonesia: Comparing the two economies

August 14, 2018

Interesting piece by Rajeev Malik. It is always useful to compare economies as it helps get a better picture (could also be a case of comparing apple with an orange).

Both India and Indonesia elected leaders in 2014 amidst new hope and change:

India and Indonesia experienced positive tectonic political change in their national elections in 2014. The actual delivery by Prime Minister Narendra Modi in India and President Joko Widodo (“Jokowi”) in Indonesia has been positive, but less than the hyped-up investor expectations. The two countries are scheduled to have elections in 2019, and an important differentiation between them is inflation: It eased in both countries, but Indonesia is the clear winner. 

Malik points to similarities and differences between the two economies in recent years.

The central banks have hiked rates in both the economies. But for Indonesia it is to defend against the so called currency war and in India for inflation:

India has better managed food inflation than Indonesia. Food inflation declined this year, to 3.2% year-on-year in June, while it increased in Indonesia, to 5.4% in July. The Modi government deserves credit for ensuring lower food inflation. However, it hasn’t implemented any new institutional framework that inspires confidence that stability in food inflation will be sustained and isn’t just a propitious outcome of good luck and ad-hoc policy steps. A key concern is that with core inflation already firming in the early stages of recovery, any increase in food inflation from an unanticipated supply shock will further complicate inflation management for the infant  monetary policy committee (MPC).

The motivation for monetary tightening this year was different in the two economies, which have significantly improved their macroeconomic landscape compared to the “taper tantrums” in 2013 when they were included in the Fragile 5 economies. BI has been more aggressive, hiking its policy rate by a cumulative 100 basis points (bps) in three steps to 5.25%. The Reserve Bank of India’s (RBI) monetary policy committee (MPC) raised interest rates 50bps to 6.5% in two consecutive hikes. 

In Indonesia’s case, higher rates were necessary mainly to defend the currency from destabilizing depreciation. India’s MPC, on the other hand, emphasized inflation concerns rather than currency defence as its main goal when it unexpectedly raised the repo rate in June. It hiked again in August and announced its inflation forecast for early 2019-20 at an elevated 5%. 

Additional monetary tightening is in store for both economies, but the use of interest rates to defend the currency is a bigger risk for Indonesia than India. It will also be subject to external triggers. Inflation risk, however, is more underappreciated in India.

He does not add that perhaps the hike in Indonesia was also due to the suffering of the economy in SE Asian crisis. They are just being cautious this time having learnt the lessons (perhaps)…


How a Swiss bank was toppled by a financial scandal in Malaysia – and what can be learned from it

August 14, 2018

Salvatore Cantale and Ivy Buche of IMD Business School in this piece write about the misadventures of BSI Bank in the Malaysian 1MDB scam:

The 143-year-old bank was one of the oldest in Switzerland and the sixth largest, having expanded overseas during the 2000s into the high-growth markets of Asia, Eastern Europe, the Middle East and Latin America. As a strategically important financial centre, the bank opened a Singapore subsidiary in 2005. Under chief executive Hanspeter Brunner it grew rapidly. Among its clients were high net-worth individuals, family-owned companies, and several state-owned wealth and development funds – including 1MDB.

Storm clouds were gathering. In 2011, the Monetary Authority of Singapore, the state bank and financial regulator, inspected the bank for the first time, finding policy and process lapses and weak enforcement and control. A second inspection in 2014 uncovered serious shortcomings in BSI Singapore’s due diligence conducted on assets supposedly underlying the investment funds. The bank became embroiled in regulatory investigations related to 1MDB – now BSI Singapore’s largest and most profitable client.

A subsequent intensive on-site inspection of BSI Singapore revealed multiple breaches of anti-money laundering regulations, a pervasive pattern of non-compliance, poor and ineffective oversight from senior management and numerous acts of gross misconduct. The bank’s licence was withdrawn in May 2016, and the names of BSI Singapore employees, including Brunner’s, were passed to authorities to determine whether they had committed any criminal offence. Investigations into Brunner and other executives continue, although Brunner recently won back a confiscated passport.

On the same day, the Swiss Financial Market Supervisory Authority (Finma) started criminal proceedings against the BSI group for failing to prevent suspected money laundering and bribery in its dealings with 1MDB. The BSI group was fined 95m Swiss francs (US$96m), the amount the bank had generated in illegal profits. The group’s chief executive Stefano Coduri stepped down, and subsequently BSI was taken over by private banking group Zurich-based EFG International, on Finma’s condition that the BSI group would be dissolved within the next 12 months.

The US Department of Justice also filed civil forfeiture complaints in 2016 and 2017 seeking to recover about US$1.7 billion tied to 1MDB – the largest action brought under the US Kleptocracy Asset Recovery Initiative.


There will always be tension between the demands of business and regulations controlling a bank’s exposure to risk, especially when directives are given to achieve high growth targets. This scenario plays out in banks all over the world – but which should prevail? BSI appears to have prioritised customer demands in its pursuit of growth and profit, at the expense of compliance and internal controls. The outcome, as it was during the financial crash of 2007-08, is plain to see.

The failure of senior management to provide any effective oversight of non-compliance or misconduct of bank employees ultimately points to a dereliction of duty. Did BSI staff not notice that 1MDB had 100 accounts at the same bank? Such high numbers of accounts are considered a sign of “layering”, a method that makes it more difficult to detect money laundering activity. While precisely what happened has yet to be established, it seems clear that BSI failed to perform its due diligence or to monitor transactions.

In a globalised world economy, the risks associated with compliance breaches and management failures in one region can have far-reaching implications in others. All chief officers in banks like to say that compliance and risk management is their key priority. But most participate only at the strategic level, and other departments such as legal, IT and project management must implement it. A common vision of strategy and compliance across all levels of all departments of a company’s global operations is required to ensure that management oversight is consistent throughout the comany.

Not every different from similar banking troubles across time and space…

Heat: the next big inequality issue

August 14, 2018

Likes of Piketty might soon have to look at a different kind of inequality – heat inequality. This means some places being hotter than others leading to all kinds of issues.

Guardian reports:


Politicization and compromising integrity of official macroeconomics statistics: Lessons from Greece

August 14, 2018

Greece (along with Italy and Argentina) never fails to surprise.

Edwin M. Truman and Nicolas Véron of Peterson Institute write about Andreas Georgiou who was the chief statistical officer in Greece from 2010-15. Apparently, he did not give overstated GDP figures during the Greece crisis leading to all kinds of career problems for the person:


Aadhaar must to buy Mysore Silk saris during sale in Karnataka

August 14, 2018

One is not sure how to react to such news.

Aadhaar will be must to buy Mysore Silk saris during the special sale organised by the Karnataka Silk Industries Corporation Ltd (KSIC) on August 15 and August 24 to mark Independence Day and Varamahalakshmi respectively.

Sa Ra Mahesh, state Tourism and Sericulture Minister, told The New Indian Express that the special sale is organised for women, who are fond of Mysore Silk, but cannot afford the same due to the price range.
“On Independence Day (August 15), we are selling the saris worth Rs 7,000 for  Rs 4,000, and on Varamahalakshmi festival (August 24), the saris worth Rs 15,000 will be sold at Rs 4000,” the minister said.

To keep middlemen away from this and to ensure the saris at discounted rates reach the intended beneficiaries, the KSIC has made it mandatory for the customers to produce Aadhaar cards while buying the saris during the special sale at the respective showrooms or outlets. This mandatory  submission of Aadhaar while purchasing Mysore Silk saris is also to ensure that the person who buys a sari in this special sale will not be eligible to buy the same for the next five years in the same offer.

Sa Ra Mahesh said, “We made Aadhaar compulsory to buy the saris to avoid misuse of the scheme.”

Not sure whether this was needed.

One just has to ensure enough supply at different price points. Then let people take a call whether they want to buy and at which price level.

What will the financial world look like in 2028?

August 14, 2018

Ravi Menon, Managing Director of the Monetary Authority of Singapore, engages in this so scenario planning for financial sector in 2028.

The speech is titled:  Financial regulation – 20 years after the Global Financial Crisis. Mr. Menon says in these 20 years we have also seen another crisis in 2023 which he terms as  Global Cyber Crisis of 2023!

Mr Mark Gould, Acting President, Federal Reserve Bank of San Francisco, Ladies and gentlemen, friends and colleagues, good morning. And welcome to the Symposium on Asian Banking and Finance 2028. 

It was 13 years ago, in 2015, that the Federal Reserve Bank of San Francisco and the Monetary Authority of Singapore (MAS) began this collaborative journey of organising this Symposium.

  • Let me, on behalf of MAS, thank Mark and his colleagues at the San Francisco Fed for the fruitful partnership and warm relationship over the years.

This Symposium began in 2007 to consider the lessons learned from the 1997 Asian Financial Crisis.

  • Since then, we have lived through two other major crises – the Global Financial Crisis of 2008 and the Global Cyber Crisis of 2023.

Today, I would like to take stock of the evolution of financial regulation over the last 20 years, since the Global Financial Crisis.  I think three broad themes characterise this journey:

  • first, fixing the fault lines that led to the Global Financial Crisis;
  • second, managing the risks posed by FinTech while harnessing its benefits;
  • third, defending against systemic cyber risk.

He looks at several ongoing and futuristic themes. One actually feels it is more a speech on technology than finance

For instance on DLTs:


Why the Bank of England Should Target Growth

August 14, 2018

Monetary policy keeps going in circles.

Prof Linda Yueh of LBS in this piece argues that Bank of England should also target growth. The Bank of England recently raised its interest rates after a long pause at 0.5%. The reason behind rate hike is both normalisation of policy rates and expected inflation rising in future.


Increasing diversity at Central banks: From being an old boys club to cultivating younger people, women, and minorities…

August 13, 2018

Prof Paola Subacchi in this Apr-2018 piece laments lack of diversity at central banks and their thinking.

She says most advanced economy central banks are like old wine in a new bottle. They just wish to continue legacy left behind by their predecessors.

Yet, even as central banks face important transitions, the choices of their new leaders have reflected a desire for continuity. Most obvious, Kuroda has been confirmed for another five-year term at the BOJ, and Zhou was replaced in March by his own deputy governor, Yi Gang. Even Yellen’s successor, Jerome Powell, will probably amount to more of the same.

ECB is in a different territory though. The successor to Draghi will be a contentious issue given the politics of the region:


The ‘how’ and ‘why’ of the Venezuelan crisis: Is the evil intent of government behind the crisis?

August 13, 2018

A hard hitting piece by Prof Ricardo Hausmann on Venezuela crisis.

He says it does not make sense why the collapse happened as govt could have clearly avoided or made better choices. As nothing makes sense, one can say it was the evil intent of the government which is behind the crisis:


The Culture of Coffee in Costa Rica

August 13, 2018

Interesting piece on how coffee is central to most things in Costa Rica:

At the end of the 18th century, coffee came to Costa Rica for the first time. It was also the first Central American country to develop this important crop. In those remote times, our country had subsistence agriculture, but with the arrival of coffee in these lands, the way of thinking of the Costa Ricans began to change.

The richness of Costa Rica lies in the cultural diversity of its people: coffee is a culture in itself with a tradition built day by day, with a gained value for the people who are dedicated to its cultivation.

Costa Rican coffee is the main engine of development for the national economy. It was from almost the birth of the country as an independent nation, that coffee cultivation in the mid-nineteenth century had social and cultural consequences.

Teaching economics in today’s world

August 13, 2018

Prof Deepanshu Mohan of OP Jindal University on the topic:


Dadabhai Naororji: The first black man in Britain’s house of commons

August 10, 2018

Interesting profile of Dadabhai Naororji.


Why is there such a fuss over IKEA Hyderabad?

August 10, 2018

Vishwaveer Singh of Scroll walks us through the much hyped IKEA store in Hyderabad:

The IKEA store launched on August 9 and is a culmination of a journey that started more than six years ago. It was the brainchild of Telangana’s Special Chief Secretary (Industries) at the time, Pradeep Chandra, who wooed the Swedish retail giant, convincing them to choose Hyderabad as the launch city over several others that were in the race, including Bengaluru, Mumbai and New Delhi. While IKEA’s Global CEO Jesper Brodin said, at the launch press conference, that they have “spades in the ground in many other locations across the country,” the store’s opening in Hyderabad has been a victory for the state government, who all but laid out the red carpet. Land allotments and permissions were expedited and an entire metro station’s plan was changed, so it would eventually get constructed opposite the store.

Why all the brouhaha for a furniture brand? The answer becomes evident after a walk through the store. On the first floor there is a 1,000-seater restaurant, among the largest in India, serving a mix of Swedish and Indian cuisine. IKEA’s famous Swedish Meatballs find their way to the menu (in a chicken avatar, keeping in mind cultural sensibilities), while the smoked salmon tastes like it was fished but a few moments ago from a fjord in Sweden. There are also an impressive array of desserts and of course, Hyderabadi biryani (for Rs 99), samosas and dal makhani.

Next to the restaurant is the entrance to the labyrinth that houses IKEA’s 47 show apartments. Ranging in size from small and medium to large, each space had been fitted with its own design aesthetic. Products are displayed within the setting of a living room, bedroom, bathroom, kitchen, children’s nursery, a library doubling up as a study, artworks hang on the wall, rugs sit perfectly positioned on the floor. It’s not hard to sit in one of the many armchairs and be transported to a Los Angeles loft or an apartment in New York’s meatpacking district.

There are Indian touches aplenty. IKEA’s design teams visited more than 1,000 homes around the country across various income groups, to get a sense and feel of the cultural sensibilities and needs. They then curated the merchandise for the store, along with the themes and designs for the show apartments, which include pictures of Indian monuments, such as the Taj Mahal, hanging beside Beatles posters and little touches like laundry in an apartment balcony. There are also several innovative elements: intelligent storage options that hide away into furniture that could quite possibly surprise an Indian consumer, who is otherwise used to a very different school of furniture design.

There was almost a stampede at the launch.

Till they open at other places, this will become a place to visit in Hyderabad…

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