Archive for the ‘Speech / Interviews’ Category

Lessons from a Bank-Robbing Law Professor..

July 11, 2017

Well a bank robber first and is currently a law professor at Georgetown University. Thy name is Shon Hopwood.

Here is his unbelievable story via his interview (a really long but worth it):

Sample these answers:

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Competition for US Dollar note design in 1850s

July 3, 2017

Natasha Ahmedaj of Central Bank if Albania in this speech says:

In mid 1800s, announcing the competition on American banknote, the US Secretary of the Treasury, specified two obligatory requirements to participants about the design:

  • it had to be original, and unpublished previously, and
  • have a national character.

Since at the beginning, the banknote is thought as not only a means of exchange, but also as an education tool for the public. As such, it should bear important moments of the history. The banknote performs this function through complicated techniques of subtly fine lines, to prevent reproduction, attributable also to robust security features.

Although we frequently have these valuable papers on our hands, seldom do we concentrate for a few minutes and enjoy the art embedded in them. We very rarely focus on examining how the work of a talented painter is intertwined in a sort of a miniature canvas with that of a talented engraver, turning that piece of paper into an elegant expression of creative art. The image is familiar, but it is hard to believe that 14% of interviewers in advanced countries are able to remember recognise the picture designed on each banknote. Even less people may recognise the portrait depicted on 1000 Leke or 2000 Leke Albanian banknotes.

Museums and various activities organised in light of promoting national values and raising the public awareness help to better transmit the message embedded in banknotes, and educate the public through the art in banknotes, featuring elements of our national identity.

For this particular reason, numismatists take delight in the subtleties of colours and images of the banknotes. In the apparently just pieces of paper, they are able to distinguish and recognise different ages, and the degree of social freedom.

In addition, banknotes may also depict concerns of a society, of course, when the artist was able to properly read this concern. Hence, the green of US dollar was chosen as a symbol to express the need of the stability in the period of civil war. The 2017 series of Norwegian currency reflects the concern on the return to the human basic needs, which are taken away by digitalisation. In reflection to this concern, the portraits of distinguished people of art and science are replaced with the symbols of natural resources, strongly related with the identity of the Norwegian people, such as the Viking ship, fish or the lighthouse.

All these facts show that nothing has threatened the educational and national mission of the banknote….

Competition on the 1850s sound really interesting..

What right does Finance Minister have to deny loan waivers to farmers?

June 20, 2017

Interview of Prabhakar Kelkar, Vice-President of Bharatiya Kisan Sangh.

He says the country is sitting on a volcano with farmer unrest everywhere.

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Insights into the future of cash: View of chief cashier of Bank of England…

June 14, 2017

Interesting speech by Victoria Cleland who is the chief cashier and director of notes at Bank of England. Chief cashier is such a traditional title which no one wants to be associated with these days. Interesting , BoE maintains the job title. After all they are one of the key players which has shaped the monetary world where cash has played a key role.

She is optimistic that cash will continue to remain in the system despite technology developments. Its share has declined but still remains important:

While reliance on cash is less significant than in the past, it is still crucial to everyday life and I encourage the cash industry to continue to innovate, to evolve, and to keep cash relevant and fit for purpose. To quote Jane Austen, or more precisely Mr. Knightley in her novel ‘Emma’, “Surprises are foolish things. The pleasure is not enhanced, and inconvenience is often considerable”. Understanding the drivers in demand for cash will help us to avoid surprises.

Lots of data in the speech discussing role of cash..

Hmm..

Reflection on professionalism, Hippocratic oath and the banking industry

June 7, 2017

Mr Muhammad bin Ibrahim, chief of the Central Bank of Malaysia asks bankers to be more trustworthy and ethical in their approach:

When we reflect about professionalism, the medical profession often comes to mind for its dedication, devotion, care and interest for society. Over 2,000 years ago, the Hippocratic Oath was first introduced to the world. Today, most medical school students profess some form of the oath upon graduation.

While written in antiquity, its principles are held sacred by doctors to this day. Its words have evolved with history. But its message remains the same: treat the sick to the best of one’s ability, preserve patient privacy, teach the secrets of medicine to the next generation, and much more.

What is interesting is not the oath itself, but the principles it expounds and the deep philosophical values that have firmly grounded the medical profession over the years. With it has also come an unwavering sense of identity, ethics and purpose for medical practitioners.

The numbers are equally telling. Polls such as Gallup and Ipsos have consistently ranked doctors among the most competent and ethical professionals worldwide. In 2016, 65% of people surveyed believed that medical doctors had either a high or very high level of honesty and ethical standards. The corresponding number for bankers was a mere 24%. A sad reflection of the state of affairs in the banking industry.

We trust doctors with the most intimate details of our health problems, complications and issues. We adhere to their instructions and advice, often assuredly and willingly. Few professions enjoy such stature, respect and trust. This is the epitome of professionalism.

Professionalism matters. Like the medical field, professionalism ought to form the cornerstone of the banking sector. It can be fostered. It should be practiced. And above all, it must be earned. As intermediaries in the economy and guardians of public funds, banking sector cannot hope to perform its role effectively if the respect and trust of the people is not earned.

As we commemorate this graduation today, there’s no better time to ask ourselves what it means to be a professional banker. Drawing from the medical profession and the Hippocratic Oath, let us ponder on the traits to guide our pursuit of developing high calibre and trustworthy bankers, and professionalising the banking industry. Three traits come to mind; Competence, Character and Calling.

From a banker to bankster..what a turnaround for banking industry…most countries are worried about conduct of the profession..

The Norwegian economy, sea and banknotes

May 31, 2017

Norway has released new banknotes – 100 kroner and 200 kroner. I had earlier pointed to this superb video on its banknotes.

The new notes are inspired from sea as the Norwegian economy gets much from the seas:

The motifs on all of the new banknote series denominations show the importance of the sea for the prosperity and welfare of the people of Norway. The primary motif on the front side of the 100-krone banknote is a Viking ship, while on the 200-krone note, a cod is portrayed facing left. On the back sides, abstract representations of a cargo ship (100-krone note) and a fishing boat (200-krone note) can be seen on the horizon.

The banknotes were designed by Norges Bank’s banknote designers Arild Yttri and Morten Johansen. The designs on the front sides of the banknotes are based on the proposal from Metric Design and Terje Tønnessen. The proposals for the back of the notes were submitted by Snøhetta Design. The primary motifs were drawn by the artist Sverre Morken. The Atlantic puffin watermark motif is based on a photo taken by photographer Tom Schandy.

The new 100-krone and 200-krone banknotes were printed by Oberthur Fiduciare in France.

There is a speech by the central bank chief who links Norway economy to the sea:

This is a day I have been looking forward to for a long time – it’s not every day a new banknote series is put into circulation. The last time was in 1994. And being able to hold the launch here in the Lofoten islands is an added bonus. The sea and the Lofoten islands are inextricably linked – the sea is a defining feature of the landscape and a key source of food, employment and recreation.

Norway’s coastline is embraced by the sea from the northernmost point to the southernmost tip. The sea has shaped our history and our economy, and from today onwards, it will also feature on Norwegian banknotes. Norges Bank has been governed by our elected representatives since 1816 under a clear mandate: to safeguard the monetary system and the value of our money. Norges Bank’s banknotes and coins are the community’s money, and our trust in the value of our banknotes is closely linked to our trust in each other. With this in mind, it was important to design banknotes that would tell a story about us as a community of people. As the sea is a key dimension in that story, it was chosen as the theme of the new banknote series.

Fascinating stuff..

Prof. Tyler Cowen interviews Prof. Raj Chetty…

May 25, 2017

Prof Cowen does such a good job of bringing all kinds of aspects in his interviews.

His reecnt one with Raj Chetty does not disappoint:

……If we look at your papers, they’re about topics people have already thought about. The data work is completely state of the art, but I don’t think it would be said you’re doing something other people can’t do, and yet several times a year, you come out with papers of great import that make a big splash, and the results seem to hold up. So what in fact is your competitive advantage? [laughs]

CHETTY: That’s a tough question. Part of what we try to do is exactly as you said: take old questions. I think some of the most important questions in economics and social science have not yet been fully answered, and the recent availability of big data of various types allows us, for the first time, to tackle those classic questions. What our research group tries to do is bring those two things together.

COWEN: But those both sound replicable, right? What’s the non-replicable asset?

CHETTY: What hopefully our contribution and scale is, is showing how you can take those large datasets and not get lost in them, and bring out the key lessons that are relevant for thinking about these classic questions.

It’s very easy — students often have this reaction, that all I need to do is get access to this big dataset, and then I’m going to be all set for my thesis. And what you end up finding is that that is often not the case. It’s very easy to write a paper that is not that good, even with cutting-edge data and modern techniques. So one of the things that I try to do — and the easiest way to see this is if you internally, within our research group, see the iterations of the papers we’ve been working on — where we start out is often very far away from the papers that people see as the finished product. We work hard to try to write a paper that ex post seems extremely simple: “Oh, it’s obvious that that’s the set of calculations you should have done.”

Being realisitic about cash vs digital payments debate

May 19, 2017

Interesting speech by Bank Negara Malaysia’s Deputy Governor – ncik Abdul Rasheed Ghaffour. He speaks on the burning issue of cash vs digital payments.

He says there are three aspects to this debate:

 

As a policy maker, I would think that there are three elements, or the ‘3S’, that we should consider in determining an optimal balance of paper and digital, cash and cashless.

Security
The first consideration is security. Counterfeiting is as old as money itself. However, cash has become more secure in recent years. In Malaysia, the amount of counterfeits discovered reduced by 25% in the past year. The currency industry is continuing to make good progress in enhancing security features. I am particularly pleased to note the recent efforts to make such features intuitive – so that the man on the street is likely to notice when something is amiss

The security challenge will not disappear by going cashless. The latest being the recent Ransomware attack. Cyber risk remains a real threat that must be managed. Significant efforts have been made to strengthen resilience against cyberattacks. The banking and payments systems industry has made this a key priority in recent years. However, cybersecurity is ultimately a shared responsibility between the provider and the consumer. Even the most robust systems can be breached if consumers do not exercise adequate caution or are deceived by fraudsters. In this regard, consumer education plays an important role in keeping cashless payments secure.

In addition, cash is also a choice payment instrument for illicit activities. Unlike digital transactions which almost always leave a trail to the parties, payments in cash are anonymous. In his recent book, The Curse of Cash, Kenneth Rogoff points out a very sobering reality – the amount of US Dollars in circulation outside of banks suggests that each American should have around USD4,200 in their wallet. This is not the case. According to him, most of this money is used to hide transactions.

However, this alone does not warrant moving away from cash entirely. Rogoff himself acknowledges this, and proposes the solution of eliminating large denomination notes – such as the United States’ hundred dollar bill. The logic is simple. With the next largest bill being USD50, such a move would immediately make it twice as cumbersome to hoard and pass around suitcases of cash. This is in fact a policy call which Malaysia has made, when we phased out the RM1000 and RM500 notes in 1999. At the same time, the case for removing large denominations becomes weaker as each year goes by. This is because the effect of inflation plays a similar role in making cash transactions more difficult for illegal activities.

Social cost
The second element for consideration is the social cost imposed by the form of currency chosen. On the surface, cash may appear to be costless. Consumers do not have to worry about subscription fees and exorbitant interest rates lying in wait. Retailers are not required to pay fees to accept cash, and so need not pass on any servicing charges to the consumer. There is no need for banks and merchants to invest in and maintain sophisticated software and hardware to support digital payments.

However, cash does not come cheap. Money needs to be printed and minted, and then transported, counted and guarded – several times over. Each step here poses a significant cost to various actors within the economy. Central banks have to deal with the rising cost of producing secure and durable money. Storing and moving money around under tight security can be expensive for both commercial banks and retail businesses. This does not yet account for the losses relating to under-reported taxes which is directly enabled by a cash economy – a cost borne by society as a whole. A 2005 study estimated this figure to be USD100 billion annually in the United States alone

The task of calculating the relative total cost of cash and cashless payments is a difficult one. Apart from the methodological challenges, the findings for each study are also likely to differ according to the nuances of each country. Nonetheless it is a worthwhile endeavour. Policy makers around the world have made positive progress in this area, and I believe we will see more efforts on this front in the coming years.

This leads to another dimension of the social cost consideration, which is the impact on financial inclusion. Millions of people live in rural areas globally, with little or no access to the modern infrastructures necessary to facilitate cashless solutions. The availability of cash is therefore paramount in ensuring that they continue to be seamlessly included in the financial system. At the same time, the success of mobile payments operator M-Pesa in rural Kenya has demonstrated that cashless alternatives can in fact be a means to promote financial inclusion for the unbanked. Here in Malaysia, where mobile banking transactions have tripled in the past year, there is potential to leverage the high mobile penetration rate to improve financial inclusion.

Stability
The third element is stability. The ability to make retail payments reliable is crucial for the effectiveness of the financial system. As discussed earlier, we have come a long way in developing a reliable way of transacting electronically – through solutions such as credit cards, mobile transfers and prepaid balances. Central banks are now carefully monitoring newer developments, particularly digital currencies based on the use of a distributed ledger. Digital currencies have tended to be volatile and subject to speculative hoarding. This raises the potential for runs on the digital currency, triggered for instance by a loss of confidence in the currency itself or a third party provider like an exchange. This risk is likely to be augmented where the digital currency is not backed by an issuer, and where there is no lender of last resort function. If digital currencies are widely used, such a shock could have systemic repercussions. At the same time, some of these concerns may be addressed if the digital currencies used are issued by a central bank. Many policymakers are studying this option.

In addition to facilitating payments, cash has been a powerful instrument for central banks to build trust and credibility with the public. The notes issued by central banks provide us with a direct and tangible link to the people – making it a key branding tool. Trust and confidence in the central bank are crucial for us to effectively deliver our mandate. This dynamic is augmented in jurisdictions like Malaysia, where the central bank is responsible for promoting both monetary and financial stability. If we were to go completely cashless, central banks might lose this traditional means of maintaining a strong brand.

Hmm..

Why don’t our economic experts/CEOs/analysts/media speak their minds on Indian economy?

May 15, 2017

After a long time, one gets to read a speech which talks about one of the most fundamental problems facing Indian economy: lack of healthy criticism (not negative) of government/RBI policy. It is unbelievable to see these days how often the view of all so called independent minds is similar to the government. Pick the newspaper post any budget or monetary policy and you see so called independent minds praising the policy. Thankfully I am not the only one saying this.

Most do not even mention that their view  before policy was very different from what happened in the policy and just shamelessly switch sides. Those few that admit the divergences call the policy prudent and cleverly shift to other side. There are just very very few who are willing to question the move. But then some of them remain silent fearing trolling. All in all, there are just a handful who are willing to speak their minds and they are not liked.

So it is interesting that the Chief Economic Adviser has raised issues about this behavior in a recent much talked about speech. The speech is provocatively titled as: Competence, Truth and Power: Macro-economic Commentary in India. He says:

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Lessons on ethical investments from Norway’s Pension Fund Global

May 5, 2017

Speech from  Mr Øystein Olsen, Governor of the Norges Bank:

Norges Bank aims to be at the forefront of global efforts in the area of responsible investment. Responsible investment is an integral part of the investment strategy and includes the exclusion of companies on an ethical basis. In 2016, the Ministry of Finance, at the request of the Storting, introduced two new criteria for ethics-based exclusions: a climate criterion and a coal criterion. Norges Bank has conducted extensive research to collect data and perform analyses to identify the companies that fall under the coal criterion. Based on the results, the Executive Board decided to exclude 69 companies and place 13 companies under observation in 2016. On the advice of the Council on Ethics, the Board also decided to exclude a further eight companies and place one company under observation, while the exclusion of one company was revoked. The exchange of information and division of responsibilities between Norges Bank and the Council on Ethics functions smoothly.

Hmm..

Why Europe still needs cash…

May 3, 2017

Yves Merschodf European Central Bank argues why Europe still needs cash.

He says there are 3 camps which argue for digital payments. However, their arguments are off the curve:

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How Fiji Central bank honored and celebrated the country’s first Olympic Gold medal win in Rio..

April 28, 2017

An interesting speech on how central bank and governments keep the feeling of nationalism going.

Fiji won its first medal ever in Rio Olympics in the sport of Rugby 7.  The central bank decided to honor the win by issuing a colored coin but the project got into difficulty as only one side could be colored. This led to delay leading to some compromises.

The episode is nicely covered in this speech by the central bank governor Barry Whiteside:

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Now central banks are weary of private digital money: How history is being repeated the other way round..

April 28, 2017

Before central banks became monopolies of currency issuance, private banks started issuing their own notes. These notes were backed by gold/silver. However, some banks could overissue currency leading to mismatch between currency and metal base.

It so happened that a Swede bank – Stockholms Banco- over issued its banknotes. This led to a kind of run on the bank leading to all kinds of crisis. The bank was shut leading to jailing of its founder  Johan Palmstruch. But the seeds had been sown and the King established another bank called Bank of the Estates of the Realm in 1668. This bank eventually became Riksbank, known as the first central bank of the world. (Much more here)

So basically, early central banks were formed for two purposes. Prevent this overissuance of private bank money (as in Riksbank) or financing wars (as in Bank of England and Banque de France). They were not really central banks right at the beginning. The Central bank we know today came via evolution over multiple years as Governments realised the power of money and concentrated most powers under a central bank financed by them.  Though early central banks were private banks which were eventually nationalised.

Fast forwarding to today. With digital money, it is becoming possible for private players to once again enter the money space. And not surprisingly central bankers are worried as a monopoly would be.

Norway’s central bank  Deputy Governor Jon Nicolaisen gives a speech cautioning against these private money. He gives an example:

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Life lessons from a Bacardi: remember your roots and be frugal

March 30, 2017

Nice interview of Facundo L. Bacardi, the great grandson of founder of Bacardi.

Facundo L. Bacardi had little interest in joining the family business, which happens to be the largest privately held spirits company in the world, with a portfolio of more than 200 brands, including Bombay Sapphire, Grey Goose and Dewars.

The great-great grandson of Bacardi company founder Don Facundo Bacardţ Massū had other plans.

“When I was young, I wanted to be a lawyer,” he said. “When I got to my teens, I started thinking, Boy, I’d really love to be a baseball player.”

As Bacardi got older, his family legacy began calling him. Now 50, he has been chairman of the board of Bermuda-based Bacardi Limited since 2005 and a director since 1993. He spoke with Reuters to share some of the life lessons he has learned from his family — and the family business — over the years.

He says the most important lesson is to be frugal and rooted:

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Reforming Culture (in financial services) for the Long Term

March 22, 2017

I just blogged about why importance of preserving local culture and values as SBI merges its associate banks.

So, one just came across this NY Fed chief William Dudley Speech in London on reforming culture in finance. In evening he participates in a panel discussion titled: Worthy of Trust? Law, ethics and culture in banking.

Dudley who was under fire for corporate misgovernance a NY Fed has earlier also made remarks on culture.

In the recent speech he says:

As I have argued before, incentives shape behavior, and behavior drives culture.  If you want a culture that will support your long-term business strategy, you need to align incentives with the behaviors that will sustain your business over the long haul.6

Incentives—compensation and promotion, in particular—are powerful tools for communicating the conduct and culture you desire for your firm.  Of course, the cultures of firms can and should vary.  But, the culture of every bank should share a common theme: stewardship—a word that implies professional care, exercised year after year for the benefit of the firm and its stakeholders.  A commitment to the long term must be at the core of banking.  Incentives within a firm should support that goal, not undermine it.

My emphasis on incentives is not new, but it bears repeating.  Bad incentives were a key contributing factor in the financial crisis.  In the United States, the Financial Crisis Inquiry Commission concluded that “Compensation systems—designed in an environment of cheap money, intense competition, and light regulation—too often rewarded the quick deal, the short-term gain—without proper consideration of long-term consequences.”7   This theme applied to all levels of banking organizations.  One notable example was mortgage brokers, who were paid based on the volume of loans they generated, not their quality.8

The financial crisis came to a head in the fall of 2008.  Fast forward eight years to the fall of 2016.  Wells Fargo’s chairman and CEO resigned after regulators uncovered what appeared to be widespread fraud in the retail bank.  Compensation, once again, seems to be at the center of a scandal.  Neighborhood bankers were paid based on the volume of new accounts opened, apparently with utter disregard for whether customers wanted them or even knew about them.  And, like mortgage brokers in the early 2000s, it appears that job security depended almost exclusively on meeting targets, regardless of how those targets were met.  There was a serious mismatch between the values Wells Fargo espoused and the incentives that Wells Fargo employed.9  

Investigations into what happened at Wells Fargo are continuing, so I will wait before drawing more definitive conclusions.  For now, though, it is sufficient to note the powerful role—for good or for bad—that incentives can play in an organization.  I understand that making progress on culture is difficult.  But, if you want the next round of metrics to look better than the last, use a powerful lever—use incentives. 

Today’s discussions—here at Mansion House and later at the Bank of England—are evidence that the issue of culture is important to the private and public sectors alike.  We have to keep working on this.  The public sector must continue to shine a spotlight on the issue, and the industry must continue to demonstrate that it is taking responsibility for its culture.  And, culture cannot be a subject that only receives attention because bad conduct has occurred in the recent past. 

I am convinced that a good or ethical culture that is reflected in your firm’s strategy, decision-making processes, and products is also in your economic best interest, for a number of reasons:

  • Good culture means fewer incidents of misconduct, which leads to lower internal monitoring costs.
  • Good culture means that employees speak up so that problems get early attention and tend to stay small.  Smaller problems lead to less reputational harm and damage to franchise value.  And, habits of speaking up lead to better exchanges of ideas—a hallmark of successful organizations.
  • Good culture means greater credibility with prosecutors and regulators—and fewer and lower fines. 
  • Good culture helps to attract and retain good talent.  This creates a virtuous circle of higher performance and greater innovation, and less pressure to cut ethical corners to generate the returns necessary to stay in business. 
  • Good culture builds a strong organizational story that is a source of pride and that can be passed along through generations of employees.  It is also attractive to clients.
  • Good culture helps to rebuild public trust in finance, which could, in turn, lead to a lower burden imposed by regulation over time.  Regulation and compliance are expensive substitutes for good stewardship.

Good culture is, in short, a necessary condition for the long-term success of individual firms.  Therefore, members of the industry must be good stewards and should seek to make progress on reforming culture in the near term. 

Well, there was a time when NY Fed would never discuss such issues. They were seen as soft and not of any importance. NY Fed was more about hard finance and fancy stuff.

 

Demand for Virtual currencies replacing traditional currency has always been there…Is this time any different?

March 2, 2017

RBI DG R Gandhi has a speech on two upcoming opportunities/threats in finacial industry – fintech and virtual currency (VC).

On VCs (there was a time when VC meant Venture Capital) he says this idea that VC will lead to death of currency is hardly new. These ideas have been there for a while:

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Future of cash: Cash is tried and tested and has a future (the Swiss view)..

February 28, 2017

Given the war on cash, a few “developed countries” like Germany and Swiss are not letting bills disappear that easily. They perhaps understand the issue of how cash prevents privacy much better than others. I shall not be surprised if there are deeper historical reasons behind them.

In this speech, Fritz Zurbrügg, Vice Chairman of the Governing Board of the Swiss National Bank defends cash.

The last few months and years have witnessed a growing debate on the future of cash. Its critics say that cash should be abolished, or that cashless alternatives will in any case gradually render it obsolete. However, to paraphrase Mark Twain: Reports of the death of cash have been greatly exaggerated.

This is reflected in the continuing robust demand for cash on the part of the general public. In many countries, the value of cash in circulation relative to GDP has increased over the last few years; a development that can be attributed to occasional periods of heightened uncertainty about the stability of banks in the wake of the financial crisis. Another factor is the low level of interest rates on transaction accounts, and hence the low opportunity cost of holding cash.

Moreover, surveys and anecdotal evidence suggest that cash is still widely and readily used for payments. This might seem surprising at first glance, given the numerous alternatives to cash, but there are a number of reasons. For instance, people like to use cash for personal reasons, because it allows more effective budget control or because it does not require technical know-how. People’s tastes can change, yet cash has properties that cashless methods do not have to the same extent. It is more reliable, because it does not depend on the use of a technical infrastructure. It also offers comprehensive protection as regards financial privacy. Only the availability of cash guarantees that the data owner really has control over the decision on how much financial information to share, and with whom.

In addition to these demand-side considerations, the SNB itself, as the supplier of banknotes, has no plans to do away with cash. The SNB is mandated by law to ensure the supply and distribution of cash as well as to facilitate and secure the smooth functioning of cashless payment systems. These tasks have equal status. By fulfilling both tasks, the SNB lays the groundwork for the public to choose its preferred method of payment for each individual transaction.

Yet this freedom of choice between payment methods exists only if the public has confidence in both cashless payments and cash. Prerequisites for public confidence in cash are, first, a monetary policy which is geared towards stability and ensures that banknotes and coins retain their value over the long term. Second, banknotes need to be of the highest quality and have the best possible protection against counterfeiting. Switzerland’s new banknote series is a case in point. It meets high standards of safety, design and technology. After all, banknotes are also a symbol for the quality and stability of our currency, as well as one of Switzerland’s ‘calling cards’.

It has to be seen for how long can these few dissenters against war on cash can continue…

Is the banking industry undergoing a change or a transformation?

February 17, 2017

A nice speech by Mr Frank Elderson, Executive Director of the Netherlands Bank.

He nicely mixes the consulting/strategy talk with that of central banking:

Now, the banking industry is facing several challenges. Fintech is rising, consumer trust is damaged and Basel 3.5 is on the horizon. Then there is doubt about the future of Europe, growing criticism of globalisation and uncertainty about the geopolitical landscape. Meanwhile, the world is trying to achieve the Sustainable Development Goals and implement the Paris Agreement.  

Banks will have to adapt – perhaps contribute – to this and the question is how. What is an appropriate business model or strategy? And what is the best form for the key functions that banks perform, such as safeguarding money, providing loans, and determining risk and return? Or is there a future in which non-banking entities perform banking functions?

In discussing these questions, perhaps it’s worthwhile to distinguish between change and transformation. To me, change implies an increase or decrease over time of something while its nature remains constant. Money was first metal, then paper and now digital, but it’s still money. And today’s stock exchanges are in essence quite similar to those established centuries ago.

Transformation is different. It implies something essential changes and a new order emerges. A caterpillar transforming into a butterfly. A child transforming into an adult. Philips, as Hans de Jong so eloquently described it, transformed from a consumer tech company into a health tech one. Transformation takes time, vision and the courage to take tough decisions. And it is anything but easy to genuinely transform an organisation’s culture.

Having said that I wonder: is the banking industry changing or transforming? Perhaps both? I am sure this is something we can debate at our tables later on. For now, I would like to stress that transformation is not just an inspiring concept, but also a practical and operational process. People and organisations have a capacity to transform that can be nurtured. In today’s turbulent environment, banks would do well to evaluate this capacity. It could mean the difference between relevance and irrelevance.

Sums up the issue quite neatly indeed.

He then points to some lessons from the central bank on their work on pension funds:

DNB has conducted research into the capacity of pension funds to transform and we found several things I am sure apply to other industries.

For example, we found that leadership is key. Specifically, individual leaders with the capacity to identify changes in the landscape, develop best-case and worst-case scenarios and create a compelling vision. Also leaders who are able to develop a strategy around this vision and then execute it. The leadership team is of importance, too.

There needs to be openness, trust and diversity in terms of personalities and competences. We also found that pension funds need to be appropriately equipped.

They need to be agile, have an up-to-date IT infrastructure, have sufficient budget and task the right people with the transformation process. And pension funds need to have their house in order. For unless everything runs smoothly, the organisation will focus its attention on managing the present rather than designing the future.

Finally, we found that pension funds need to be proactive. If they wait until the environment forces them to change, they are at risk. Instead, they should proactively adapt. Some pension funds began to transition from a defined benefit to a defined contribution system years ago and they are now in a good shape. Those who haven’t, are struggling to adjust to changing realities. So transformation is a process that can be managed. But the process needs to lead to something. Transformation is a means, not an end. So what is or should be the end result of a bank or the whole banking industry transforming?

He says organisations should have a well-defined purpose (vision/mission?) and work towards their purpose. Netherlands central bank purpose is financial stability (as monetary function in hands of ECB):

De Nederlandsche Bank believes in the value of having a purpose and we cherish ours. We are in this world to contribute to the sustainable welfare of the Netherlands by promoting financial stability. Through this, we also contribute to the realisation of the Sustainable Development Goals. This inspires us and guides us in relating to our stakeholders. And it seems we are not alone in this. Last December, the Dutch Banking Association published a report in which it explored how banks can contribute to the Sustainable Development Goals. I wholeheartedly encourage such explorations.

Many issues simplified..

RDX. RDX2, RDXF, SAM, QPM, ToTEM, LENS….are names of economic models used by Bank of Canada!

February 3, 2017

While reading this speech by Stephen Poloz chief of Bank of Canada, for a moment one thinks he/she is reading some scifi stuff. But such has been the state of economic modelling.

Infact the speaker starts with comparing economic forecasting to astronomy:

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Reflections on the art and science of Policymaking in India

January 30, 2017

Dr. Vijay Kelkar recently gave the CD Deshmush lecture organised by NCAER. The lecture was in news as Kelkar said there should be just one GST rate. The news agencies know shot ways to kill any interest in the lecture. This was barely a line in the whole lecture!

The lecture is based on the wide experience of the speaker in Indian policy.

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