Fascinating new museum in Ahmedabad.
Prof Jeemol Unni of Ahmedabad Universoty reviews the museum.
Mehnat Manzil is an unique museum that celebrates the life of people who undertake informal work. They form nearly 80 percent of the work force in India and many South Asian countries. By a rough estimate they contribute more than half of the national income of these countries. Yet, they are the most ignored, unsung and nearly invisible segment of the population.
Lots of pictures as well…
Slovenian central bank has long been fighting a battle against its own government.
The government believes that the central bank should pay for the banking losses since 2013. The central bank has been fighting this belief for a while.
Recently, the government passed a law which pushes the losses on the central bank. The central bank has objected to the law. Here is the translation:
After voting again on the Law on the Procedure for the Judicial Protection of Former Holders of Qualified Liabilities of Banks in the National Assembly of the Bank of Slovenia, we regret that the essential positions of the Bank of Slovenia and similar positions of other institutions were not taken into account.
The adopted law is contrary to the Slovenian legislation and international law governing the operation of the central bank. The law is controversial primarily in terms of the ban on monetary financing and financial independence.
These are fundamental principles for the operation of central banks in the euro area. The law places the Bank of Slovenia in an extremely subordinate position, which is a precedent for both Slovenia and the EU, as the strict responsibility of a public institution for its operation is unique.
Namely, the draft law stipulates that the Bank of Slovenia is liable for a potentially objective decision, with the burden of proof reversed. However, the Bank of Slovenia must pay a lump sum compensation to individuals, irrespective of liability.
Heat is on..
Canada has a long history of financial/banking stability compared to most other nations.
In this recent speech, Carolina Wilkins, DG at Bank of Canada points how the system will remain stable despite the worst possible adverse shocks:
Canadian banks are part of a global banking system that is more solid than it was a decade ago. Globally active banks are holding over US$2 trillion more capital than they were at the beginning of 2011, when the phase-in of the post-crisis reforms began. This translates to a 7-percentage point increase in their Tier 1 capital ratio.11 The leverage limits and new liquidity regulations also make these banks more resilient.12
Canada has implemented new measures to further strengthen our banking system. For example, Canada’s prudential regulator, the Office of the Superintendent of Financial Institutions (OSFI), increased the required amount of capital that Canada’s big banks have to hold to protect themselves against financial-system vulnerabilities. Canada introduced a bail-in regime to ensure that investors—not taxpayers—would take the brunt of the financial burden in the unlikely event that a big bank were to fail. Also, OSFI asked many smaller, single-business-line banks to reduce their reliance on short-term brokered funding, which can be flightier in stressful situations.
The Bank of Canada, along with OSFI, evaluates these safeguards by conducting stress tests on the major banks. Given that the idea is to plan for the worst, it’s important to study extreme scenarios. The most recent test was in the context of the International Monetary Fund (IMF)’s Financial System Stability Assessment of Canada, published in June.13
The scenario used was worse than anything seen in Canada in recent decades. There’s a recession that lasts two years, the unemployment rate increases by 6 percentage points, and house prices fall by 40 percent.14 Clearly this would be very difficult for people if it were to materialize. That said, this test found that our banks could withstand even this kind of severe, system-wide shock. This says to me that efforts to increase resilience in the banking system have been worthwhile, because they would help prevent a bad situation from becoming even worse.
Hmm…
Pablo Hernández de Cos Chairman of the Basel Committee on Banking Supervision and Governor of the Bank of Spain gives this nice speech.
The past few years have seen growing interest in technology-driven innovation in financial services.
………………
Yet finance and technology have a long and symbiotic relationship. Finance has always shaped technological developments. For example, the Industrial Revolution was facilitated by the provision of capital provided by financial intermediaries in the 18th and 19th centuries. And technology has been used in finance for over 150 years. As Douglas Arner of the University of Hong Kong and his colleagues have catalogued, one can think of three waves of technological disruptions in finance.4 The first wave of technology (“fintech 1.0”) was prompted by the completion of the first transatlantic telegraph cable in 1866 and saw finance gradually shift from analogue to digital.
This was followed by a second wave of technological innovations in financial services, starting with the advent of the automated teller machine
(ATM) in 1967 (“fintech 2.0”). Fast forward and we are now witnessing a third wave of increasing technological pervasiveness in finance, coupled with the emergence of new actors and channels for the provision of finance (“fintech 3.0”).
So when put in a historical context, fintech is not necessarily a new phenomenon or an abrupt Kuhnian transformation.5 What’s more, the recent burst of activity in the fintech space has inevitably raised questions about whether we have reached “peak fintech”, only for it to be followed by a steep trough of disillusionment as part of a hype cycle (Graph 5).6 Some have asked whether we are spectators at an “innovation theatre” that “promotes the impression of innovation and the future value that it brings” with concrete tangible improvements.7 And, more generally, regardless of the advancements made in technology, the role of human judgment is an essential element in banking and supervision.
Hmmm….
There are 5 scenarios for banks in future:
Read the speech for more details…
Simon Wren Lewis on his blog:
Prof Geoff Jones of HBS has recently written a case on role of IBM in Nazi Germany.
He discusses the case and its broad lessons in this superb interview:
RBNZ recently instituted a new DG position based out of Auckland.
I review this interesting development and ask whether RBI should do the same?
IMF econs Itai Agur, Anil Ari and Giovanni Dell’Ariccia in this paper explore designing CBDCs:
We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank’s tradeoff.
Dr Manmohan Singh wrote an oped in Hindu titled: The fountainheads of India’s economic malaise. The oped was widely discussed and trolled.
Dr Ananth Nageswaran reviews the oped on his blog:
An opinion piece written by Dr. Manmohan Singh has justifiably attracted a lot of eyeballs and nods of approval. Written by a ‘student of economics’ as he describes himself, it is a well written essay. He has also zeroed in on some answers. Restore trust and confidence in administration, in the institutions and unleash massive fiscal stimulus.
He is right to call for an elimination of the atmosphere of fear. Some of us had written about it much earlier. See here and here. The government too has recognised the problem. That is why the Finance Minister recently announced a remote system for the issuing of notices and summons. She said that permission from a two-member collegium was necessary to prosecute tax defaults below Rupees 25.0 lakhs. To be sure, Revenue might resist and is resisting the changes. That behavioural issue transcends this government. On its part, the government has recognised the problem. The government-constituted panel has proposed decriminalizing many of the offences under the Company Law. The sooner its recommendations are implemented the better.
More importantly, the reposing of trust in industry was exemplified by the new corporate income tax regime the Finance Minister announced in September. It provided for low tax rates with fewer exemptions and announced a very low rate of 15% for new manufacturing oriented companies commencing production from 2023. Yours truly wrote that the significance of that measure was not the measure itself but the signal it sent. The government was no longer bogged down by the ‘Suit boot ki Sarcar’ jibe. Indeed, that jibe should remind Dr. Manmohan Singh as to the role of the Congress Party in creating an atmosphere of distrust between the government and the industry. That deserves some further explanation.
Nice piece by Utkarsh Amitabh founder of Network Capital in Mint.
Some things books can never teach. I was reminded of this valuable lesson during a recent visit to Dubai’s Global Village. Designed like a flea market, the village brings together sellers and merchants from 90 countries. During the three hours I spent walking around, manufacturers and artisans tried to sell me everything under the sun—from Yemeni honey and Egyptian perfumes to Bosnian kebabs and Irani rugs.
I was amazed by their negotiation skills and sales techniques. Without any business training, these artisans had mastered storytelling and learnt the art of connecting with customers of different age groups and cultures. The more time I spent interacting with the artisans/entrepreneurs, the more I realized that startups can learn valuable lessons from flea markets.
The first thought that crossed my mind was finding talent. I wondered: What if these artisans were to sell software products instead of soaps and oils? What if startups were to hire them as frontline salespeople or customer success managers?
Takeways: Selling skills, cost efficiency, knowing your customers.
Not just start-ups but we all students of economics have so much to learn from the so called flea markets. You see so much of economics happening live…
Interesting short paper by Walter Engert and Ben Fung of Bank of Canada.
Cashless or tellerless bank branches have proliferated in several countries in recent years. In a cashless bank branch, teller or counter services such as cash withdrawals, deposits and cheque-cashing are not available. These services are instead provided via automatic teller machines. This note discusses the development of tellerless bank branches in Canada and analyzes the potential implications for cash demand.
Some Canadian banks are moving towards branchless banking:
Nice speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank.
Interesting ToI piece on tagging heritage properties.
Ahmedabad earned the tag of heritage city. The municipality is putting blue boards to show which properties are heritage. This concerns people as now they are not sure whether their property remains private and they can repair/sell their properties at will.
Anantha Nageswaran and Gulzar Natarajan’s recent book is on how finance has captured the world growth since last 25 years.
Financialisation, or the disproportionate importance of financial considerations in economic decisions, has been a defining feature of the economic history of the last twenty-five years. The wave of deregulation that accompanied the neoliberal agenda in the US, aided by the dominance of US dollar and American economy, has resulted in the globalisation of finance. This book examines the rise of financialisation globally, while charting its drawbacks and prescribing suggestions for a definitive overhaul of the structure. Bringing together various strands of the latest research and evidence generated in recent years, empirical analysis, and views of reputed experts in the field, it presents a counter-point to the canonical ideas of analysing financial market dynamics and financial globalisation. It proposes a revision of the current monetary policy paradigm to correct its excessive focus on equity markets and their ‘wealth effect’, embrace a more symmetric response to the economic cycle, and a mandate to focus on financial stability as much as price stability.
In a recent Mint piece, Ashoka Mody points India’s story is no different. Much of India’s growth since 1991 was finance driven The recent slowdown is part of a wider problem and will not be addressed anytime soon.
India’s gross domestic product (GDP) growth has slowed sharply from 8% a year last year to 5% in the second quarter this year. Optimists, Indian and international, say growth will pick up soon. The International Monetary Fund (IMF) projects the Indian economy will hum at 7.5% a year by 2021. Such optimism is dangerous.
GDP growth could, in fact, fall and languish in the 3-to-5% a year range. The ongoing slowdown is not a short-term disruption. Rather, a financial bubble that began inflating nearly three decades ago is finally fizzling out.
Indian policymakers have patted themselves on the back during these past growth years. They have relied on a narrow vision of economic liberalization, which could do little to generate long-term growth but which did create deep financial pathologies and inequalities.
Meanwhile, India has lagged woefully in creating the human capital and urban infrastructure needed for a modern, competitive economy. Without these prerequisites, India is bereft of a growth model.
Ahmedabad University organised Conference on 50 years of bank nationalisation: Indian Banking at crossroads. The conference was held over 2 days – 16th and 17th November 2019.
Ahmedabad University was so fortunate to hear so many experts over the 2 days. Apart from the expert sessions, we had research papers presented across 8 sessions. It is really great to see Ahmedabad University contributing to the cause of research on Indian banking.
The conference started with inaugural remarks from RBI Governor Mr Shaktikanta Das. The Governor gave a sweeping account of various developments in banking and NBFCs.
The Governor’s speech was followed by a masterclass from Dr C Rangarajan who continues to enthrall us all with his insights and erudition. It was quite something to see so many people coming to meet and click selfies with Dr Rangarajan. You know why he is considered as a pilgrimage of Indian economy.
I will post more on the conference overtime….
I wrote this piece in moneycontrol last week.
I review this decision of RBI to streamline its banking and regulation department.
Nice speech by Yves Mersch of ECB. He says we need to think differently about independence when it comes to banking supervision and regulation:
As mentioned earlier, we need to differentiate between how the principles of independence and accountability apply in the central banking context on the one hand, and in respect of the ECB’s supervisory tasks on the other[13].
The wording of Article 130 of the Treaty makes it clear that the principle of independence concerns the performance of ESCB tasks conferred upon the ECB by the Treaty itself, that is, central banking–related activities. I therefore share the view that this Article cannot be applied equally to the exercise of the ECB’s supervisory functions, which were assigned to the ECB through secondary EU legislation rather than by the Treaty,[14] and were intended for purposes other than the pursuit of the price stability objective.
Whereas the ECB has fully autonomous regulatory and decision-making powers when conducting monetary policy,[15] its discretion in carrying out its supervisory tasks is confined by the decisions taken by European and national legislators or regulators. Moreover, the ECB has a different and higher degree of accountability for its supervisory tasks than for its monetary policy task. This is because taxpayers may be affected by the way in which microprudential supervision is conducted, notwithstanding the intention under the new EU banking resolution regime for the costs of bank failures to be borne by the bank shareholders and creditors.
I in no way question the necessity for banking or financial supervisors to be operationally independent from undue political, commercial banking or other third-party influences. My point is that the degrees of independence that the ECB enjoys as a monetary policy authority on the one hand, and a banking supervisor on the other differ: both the source of independence and the ECB’s role are different in the two functions. And for these reasons, independence in the monetary policy function is stronger and more firmly embedded in the EU institutional framework than it is in the case of the supervisory function.
Hmm..
Most of the time, people are mixing these two aspects of central bank independence.
He also mentions that there are four kinds of independence (when it comes to mon policy):
Nice speech/essay by Claudio Borio. He reviews the experiences in macroeconomics and central banking before and after the 2008 crisis.
Since the Great Financial Crisis, central banks have been facing a triple challenge: economic, intellectual and institutional. The institutional challenge is that central bank independence – a valuable institution – has come in for greater criticism. This essay takes a historical perspective and draws parallels with the previous waxing and waning of central bank independence. It suggests that this institution is closely tied to globalisation, as both spring from the same fountainhead: an intellectual and political environment that supports an open system in which countries adhere to the same principles and governments remain at arm’s length from the functioning of a market economy. This suggests that the fortunes of independence are also tied to those of globalisation. The essay then proceeds to explore ways that can help safeguard independence. A key one is to narrow the growing expectations gap between what central banks are expected to deliver and what they can actually deliver. In that context, it also considers and dismisses the usefulness of recently proposed schemes that involve controlled deficit monetisation.
Speech by Stefan Ingves, Governor of Riksbank.
Most other central banks are worried about high usage of cash and want to push digi payments. Opposite is true for Sweden whose central bank is worried over decline in usage of cash and wants to keep cash as a payment option in future.
Ingves says cash should remain in circulation for three reasons: Vulnerability, Availability and Competition. It has already asked the government to decide on the legal tender status of cash.
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