Archive for March, 2025

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History of money: From coins to Digital Euro

March 31, 2025

Philip Lane of European Central Bank provides a sweeping account of evolution of money from coins to digital Euro:

A few years ago, archaeologists excavated two silver coins at Carrignacurra Castle, not too far from here.[3] The first was a groat (a coin worth four pennies) from the 1200s depicting Henry III; the second was a coin from the 1400s featuring Edward IV. These two coins indicated a society that regarded precious metal as the embodiment of intrinsic value and closely associated money with sovereignty.

Over the centuries, the currency circulating in Ireland has changed multiple times. From 1927 until the launch of the euro, the Irish pound (the punt) was the national currency of Ireland. The punt was not backed by a precious metal, such as gold or silver. Rather, it was a fiat currency that derived its value from government regulation, the assets backing the currency and trust in the issuing authority, the Central Bank of Ireland and its forerunner the Currency Commission. Until 1979, the punt was pegged to the British pound sterling at a 1:1 exchange rate, reflecting the historical linkages with the United Kingdom and the significant bilateral trade volumes. It operated as legal tender until around a quarter century ago, when Ireland along with ten other EU Member States introduced the euro (twenty countries are now members of the euro area). By adopting the euro, Ireland reinforced its commitment to European integration, while also reducing its dependence on the UK monetary and financial system.

The developments in Ireland’s currency over time demonstrate how monetary systems are shaped by broader societal and economic transformations. For instance, the history of Irish money includes two episodes of free-banking money, whereby private banks issued banknotes that were used by the public as means of payment.[4] In this aspect, the monetary history of Ireland resembles that of Scotland, England and the United States. This history can shed some light on the current debate about the new forms of private money that are emerging today, such as stablecoins in the context of a digitalising society – a trend that has become more pronounced in recent years.[5]

In an increasingly digitalised society, in which the role of physical banknotes issued by the central bank is receding, the question arises whether the European Central Bank should issue a central bank digital currency (CBDC) for the euro area.[6]

Today, I will explain why it is imperative for the ECB to introduce a digital euro.[7] I will first discuss the roles of central bank money and commercial bank money over time, before describing a range of scenarios that suggest a digital euro is necessary to preserve the monetary autonomy of Europe. Finally, before concluding, I will outline the benefits of the digital euro for Europe’s Economic and Monetary Union.

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What it takes to increase the rate of growth in the economy? Lessons from economic history

March 31, 2025

Andrew Bailey, Governor of Bank of England in this speech discusses what it takes for an economy to grow.

I am going to speak today about a topical subject – economic growth. The question I set myself is, what does it take to create a sustained increase in the growth rate of the economy in today’s world? I’m going to range quite wide in answering the question, drawing in the current situation here in the UK and the world, and some economic history too.

Economic growth is, quite simply, the rate of expansion of the size of the economy. Let me start by explaining how it matters to the Monetary Policy Committee when we decide on the appropriate level of interest rates to achieve our objective of price stability, the 2% inflation target. There are two parts to why growth matters for monetary policy – the outcome and the inputs. On the first, quite simply, low and stable inflation is the best contribution monetary policy can make to growth in the economy. The same goes for financial stability, our other core responsibility as the central bank, which is also a key condition for growth.

On the inputs side, growth matters because monetary policy decisions require us to assess the inflationary consequences of the pressure on economic resources in this country. That pressure reflects the balance between demand and supply in goods and services and labour markets. To observe that level of pressure, we can’t just look at actual national income or output and employment. If that’s all we did, we would be left saying “so what?” We have to compare the actual position with the productive potential of the economy (the supply capacity of the economy) and in doing so assess resource utilisation and thus the degree of pressure.

The British growth has slowed considerably in recent years:

So, what has been going on with the growth of potential supply in the economy in recent times? A spoiler here – it’s not a very good story. I am going to give three figures for three time periods based on Bank staff estimates: the average annual rate of growth of potential supply in the UK economy and the contribution to that growth rate of productivity and labour supply. From 1990 to 2008, the average annual potential growth rate was 2.6%. Productivity contributed 2.2pp and labour supply 0.4pp. After the financial crisis, from 2009 to 2019, the potential growth rate fell to 1.3%pa, of which productivity contributed 0.3pp and labour supply 1.0pp. From 2020 to 2023 the potential growth rate fell further to 0.7%, with productivity contributing 0.5pp and labour supply 0.2pp. Covid was clearly a major factor in the most recent period. The comparable numbers for the growth of demand in the economy – actual growth – are: 1990-2008 2.3%; 2009-2019 1.4% and 2020-2023 1.1%.

I think the point comes across clearly. The growth of potential supply has fallen, with the main contributor to that fall being weaker productivity growth. Covid was a major factor in causing a further fall. But it is the decade before Covid that provides a better read.

Insights from economic history:

Britain is credited with being the first modern industrial nation. Typically, the definition of modern economic growth in this context is where technological progress is centre stage[2]. Recall that GDP growth per capita was 1.8% pa before the financial crisis, but only 0.7% pa afterwards. Looked at in the longer run context, a figure of around 2.2%-2.4% pa was the average from 1950 onwards. And, a figure of about ¾% was respectable for the nineteenth century, where the average was a bit under 1% for the period of the so-called Industrial Revolution. All things are relative and close to 1% was a considerable step up on the pre-Industrial era[3].

Still, we are left with the conclusion that a growth rate of per capita income which disappoints today would have looked respectable during the Industrial Revolution. What’s changed? Two things stand out. First, it looks as if the overall growth rate has been enhanced over time as the development of institutions (public and private) and policies has provided an environment that supports growth. This is often known as endogenous growth – the environment supports and enhances the impact of technological progress and investment. Second, in an open economy such as the UK a key to growth has over time become the prompt and effective diffusion of foreign technology as well as domestic invention[4]. In other words, there is a bigger base of innovation to draw upon.

Having made the point that things have changed in terms of growth rates since the Industrial Revolution, I want to go back to that period to identify four salient features which I believe are highly relevant to understanding today’s environment. The four are: technological change; energy supply; population change; and the role of trade. These are all big subjects in their own right, so my treatment of them is going to be quite sparing. The main point I want to draw out is that each of these issues was important in the process of industrialisation, and each of them remains important in today’s world.

Let me start by attempting to define what is meant by the term Industrial Revolution? A lot of ink has been used on this one. I am going to borrow a definition from the economic historian Tony Wrigley:

“The distinguishing feature of the industrial revolution which has transformed the lives of the inhabitants of industrialised societies has been a large and sustained rise in real income per head. Without such a change the bulk of all income would necessarily have continued to be spent on food and the bulk of the labour force would therefore have continued to be employed upon the land …..only when output growth exceeds population increase substantially and consistently, can there be grounds for supposing that an industrial revolution is in train.

The essence of the definition is that technological change appeared to break the tight link between the economy’s endowments of factors of production (land, capital and labour) and income, a break that was not expected to occur by classical economists such as Adam Smith who did not envisage sustained growth[6]. This technological change did not happen as quickly as the word ‘revolution’ would suggest. Moreover, it didn’t happen evenly over time and certainly not evenly across the economy, and that too has led to a lot of ink being used to describe and debate the meaning of the term Industrial Revolution.

Lessons for today?

I think there are two lessons. First, if we think we are more or less using the factors of production fully today – if Y* is near to the production frontier made possible by the state of current technology, then we will need some quite large technological advance to break again the link that Adam Smith and the classical economists described – in other words, to push the frontier out. I am going to come back to whether AI is that technology. Second, even if the link is broken, it will take time to materialise and spread across the economy. This is a long term process. To be clear though, this does not mean that we can expect no growth without a major breakthrough on technology. Growth rates will go up and down for many reasons. But a substantial and sustained increase in growth most probably does need this breakthrough to happen, as has been case in the past.

Another way of capturing this issue is to ask what has caused the slowdown in productivity growth evident in all the major economies – not just the UK – over the last 15 to 20 years. There are two theories on this whodunnit. The first is that it is a consequence of the Global Financial Crisis.

The second is that since the start of the slowdown seems to pre-date the GFC it is due to a trend decline in technological innovation as the ICT revolution of the internet, faster semi-conductors etc., started to slow (and what matters here is the rate of increase of innovation, not the level of it). The evidence seems to provide rather more support for the second explanation, but both could have been at work.

Conclusion:

To conclude, we face a necessary challenge to raise the potential growth rate of the economy. There are strong headwinds. The combination of technology and trade remains an essential route to increasing productivity. Adam Smith’s basic tenet is as true today as it was two hundred and more years ago. Growth also requires strong institutions and public policies to provide a supportive environment. Education and universities are part of that story – to create and encourage the development of human capital so, too is a strong multilateral international institutional framework for economy policy, including trade policy. And, central banks are important too, with our strong commitment to monetary and financial stability.

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A Model of Ponzi Schemes

March 28, 2025

Interesting paper on modelling Ponzi schemes:

We develop a model of Ponzi schemes with asymmetric information to study Ponzi frauds. A long-lived agent offers to save on behalf of short-lived agents at a higher rate than they can earn themselves. The long-lived agent may genuinely have a superior savings technology, but may be an imposter trying to steal from short-lived agents. The model identifies when a Ponzi fraud can occur and what interventions can prevent it. A key feature of Ponzi frauds is that the long-lived agent builds trust over time and improves their reputation by keeping the scheme going.

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Lessons from a small, open, developing, inflation targeter: Jamaica

March 28, 2025

Richard Byles, Governor of the Bank of Jamaica discusses lessons of inflation targeting from a small open developing economy:

Good [afternoon]. Thank you for inviting me to participate in this forum. I will speak on Jamaica’s experience in managing the post-COVID-19/Russia-Ukraine inflation shocks. This experience may be a useful case study among Latin America and Caribbean (LAC) economies and could offer some insights for our ongoing enquiry into appropriate macroeconomic policy making.

My basic conclusion is that, in response to the twin shocks, Jamaica performed well relative to other LAC countries. In the context of appropriate fiscal and monetary policy responses, Jamaica’s GDP rebounded to its pre-pandemic level at a speed consistent with the recovery of its peers. Inflation spiked but returned to target in short order while inflation expectations, although rising temporarily, returned fairly quickly to normal levels. The exchange rate remained relatively stable and our foreign reserves increased.

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225th anniversary of the Banque de France: Two lessons from its history

March 28, 2025

Banque De France established in 1800 by none other than Napoleon Bonaparte is celebrating its 225th anniversary in 2025.

François Villeroy de Galhau, Governor of the Banque de France in this speech points to two lessons from the history of two centuries:

It is a pleasure to speak today at this historical conference organised in partnership with the Fondation Napoléon. This year, 2025, marks the 225th anniversary of the Banque de France, founded by Napoleon Bonaparte as a ‘mass of granite’ to stabilise the scattered ‘grains of sand’ of the Nation and participate in its reconstruction after the Convention and the Directory.

I think that we can all agree that the results have lived up to our ambitions: the Banque de France, its women and men, remain one of the cornerstones of the national – and now European – edifice and have enabled it to weather times of economic and financial turmoil.

These successes are primarily due to the dynamic governance that has constantly renewed itself in order to serve an increasingly broad general interest (I). This year, which is particularly fraught with uncertainty at both the national and international levels, a few key episodes in our history also provide two lessons in resilience for France (II) and Europe (III).  

For France, he says how BdF has consistently been a beacon of confidence for French economy:

The Banque de France has therefore represented a beacon of confidence in times of economic and financial turmoil. The stabilisation of the French franc is a prime example. After the First World War, the French economy gradually sank into a crisis that worsened from 1924 onwards. There were three main symptoms: a deterioration in public finances, a sharp depreciation of the franc and government instability – there were eight ministers of finance between 1925 and 1926. Headed by its new governor Émile Moreau (1926-1930), the Banque de France endeavoured to defend the franc on the foreign exchange markets and it managed to stabilise it at a rate that was conducive to confidence and financial stability at the end of 1926. At the same time, Émile Moreau engaged in extensive discussions with Raymond Poincaré, President of the Council of Ministers, to convince him of the need to stabilise the franc, i.e. devaluation from its pre-war parity. Émile Moreau had no hesitation in threatening to resign in the national interest.vi The President of the Council of Ministers ended up coming around to the position of the Banque de France: the monetary law of 25 June 1928 introduced the “Poincaré” franc and brought lasting calm to the financial turmoil. 

This is not an isolated example: several Banque de France personalities spurred on a national recovery in the face of danger. In 1958 for example, the De Gaulle-Pinay-Rueff financial stabilisation plan was largely inspiredvii by the economist Jacques Rueff, former Deputy Governor of the Banque de France. Wilfrid Baumgartner, former Governor of the Banque de France (1949-1960) and Minister of Finance from 1960, ensured that it was successful. Two decades later in 1983, Jacques Delors – whose name this auditorium honours – averted the spectre of a financial crisis by implementing fiscal cuts and de-indexation measures to keep France in the European Monetary Systemviii (EMS).

For Europe:

Indeed, the other contemporary lesson – alongside necessary French reform – is the need to work for European monetary sovereignty (III). Two significant episodes illustrate this. 

First, the ‘battle of the franc’, also known as the ‘EMS crisis’, which occurred between 1992 and 1993 at a pivotal moment between the signing of the Maastricht Treaty and its effective implementation. In September 1992, just when the Treaty was due to be ratified in several Member States, speculative attacks targeted European currencies, forcing some of them to leave the EMS. Jacques de Larosière was Governor at the time and Jean-Claude Trichet, who was to succeed him at the end of 1993, was still Director of the French Treasury. The Banque de France intervened massivelyx on the foreign exchange markets to support the franc. If the franc had left the EMS, it would have meant that the European Monetary Union project would have been abandoned for a long time. Fortunately, this did not happen – although it was a close-run thing – and the crisis was resolved within a European framework, as was the case later in July 1993, when the EMS fluctuation margins were finally widened, putting an end to the pressure on exchange rates. Better still, this crisis revealed the fragile nature of fixed exchange rates between national currencies and, in so doing, strengthened the determination of Member States to complete the transition to Monetary Union as quickly as possible.

I will now move on to a second crisis, this time an existential one for the euro area. As of 2009, the global financial crisis began to mutate into a sovereign debt crisis in the euro area. Certain heavily indebted Member States faced the prospect of losing access to capital markets, and the euro area was in danger of breaking up. This was the first real test of the collective response capacity of the Eurosystem. It responded decisively by granting long-term loans to commercial banks, buying sovereign bonds of Member States in difficulty on the secondary market where necessary, and managing the specific cases of the hardest-hit banks. Despite differences of opinion, the Member States managed to find common ground through trust-based dialogue: they established a safety net and created the European Stability Mechanism and the Banking Union 

These two crises taught us another lesson in resilience: by acting together, Europe has become more robust. In the words of Mario Draghi, Europe gained the ability “to control its destiny”xi  thanks to this unique monetary sovereignty, recognised – and sometimes envied – throughout the worldxii.

Lots of history…

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The Nordic model and income equality: Myths, facts, and policy lessons

March 27, 2025

Magne Mogstad, Kjell G Salvanes and Gaute Torsvik on Nordic model:

Nordic countries appear to have developed a social and economic model that combines prosperity with equality. This column identifies four key pillars of the Nordic model: (1) substantial public investment in essential services, (2) influential labour unions, (3) high public expenditure on social insurance, and (4) high and progressive taxation. Equality in hourly pay, linked to high union density and strong coordination in wage bargaining, is the main reason for lower earnings inequality in the Nordics. Further research is needed to determine the implications of this for productivity and growth and whether the model is replicable.

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Functions of Book Reviews in Economics

March 27, 2025

Julien Gardoz of Duke University  in this paper examines the importance of book reviews in economics:

This article examines the functions of book reviews in economics. Since most book reviews provide a description, an analysis, and an appraisal of a book’s content, their first function is to highlight the book’s existence, encourage or discourage readership, and offer post-publication peer review.

Book reviews also facilitate knowledge transfer across languages, disciplines, and audiences.

Moreover, for reviewers, writing a book review can be a way to signal their expertise to peers, to defend their ideas and positions, to supplement their income, or to expand their personal library.  For authors and publishers, reviews provide feedback and visibility. For journals, book reviews can be a way to promote specific ideas, to attract readers interested in book reviews, to build connections with scholars, and to promote books by scholars associated with the journal. To

examine these functions, this article primarily focuses on book reviews related to demand theory, monopolistic competition theory, and international trade theory from the mid-1940s to the late 1950s.

 

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Type I and Type II errors of Financial Markets Regulation

March 27, 2025

In statistical testing, Type I and Type II errors could lead to big problems.

  • Type I error is when the defendant is deemed as guilty when she is innocent.
  • Type II is when the defendant is deemed  innocent when she is guilty.

Both these errors create their own sets of problems. There is also a trade-off between both the errors. You lower one type of error and the other rises and vice-versa.

Ananth Narayan, Whole TIme Member of SEBI in this speech uses the Type I/II error analogy to explain financial markets regulation:

Together, we need to ensure investor protection and awareness, while furthering sustained capital formation. Spreading investor awareness & education is a core part of SEBI’s remit, and we are working to ensure greater investor participation alongside responsible and risk – aware investing. We are all so undertaking a nationwide survey to help inform our outreach strategy. (IAs like Shri Harsh Roongta are part of our IEPF committee).
We also need to collectively minimize Type 1 errors (when wrong things happen and endanger trust) and Type 2 errors (where regulations come in the way of good business).
On type I errors, a common worry for all of us is the menace of unregistered IA/ RAs who are cashing on the rising interest in investments. Since October 2024, SEBI has worked with social media companies to bring down over 70k misleading handles/ posts.
The SEBI proposal to use the UPI “ P ayright” handle to help clearly identify SEBI registered entities is one way to ensure that we create a gated virtual community of registered entities that enhances investor trust and protects them from fraudsters.  This is an extension of the optional “CeFCoM” –Centralised Fee Collection Mechanism – that is already available to you. We need your help and engagement to make this work.
To avoid Type I error, one would make tighter regulations. But this will lead to Type II errors.
In policymaking, one has no choice but to try miimise both errors:
The recent trends of greater domestic participation in securities markets underlines the need for all stakeholders–including IAs and SEBI–to work together closely to ensure investor awareness and protection, responsible investing, minimizing both type I and type II errors. The level of dialog between all of us has noticeably improved, and this trend should continue – sustained capital formation is our common collective goal.

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The Biggest Threat to Swiss Banking Center: Swiss Domestic Politics

March 25, 2025

Swiss upper house has backed a motion that caps bankers’ pay:

The Swiss upper house of parliament late on Monday narrowly backed a motion to limit bankers’ total annual compensation to between 3 and 5 million Swiss francs ($3.4-5.7 million), a sum significantly below what the best-paid earn today. By a vote of 21 in favour and 19 against, the measure initially proposed following the 2023 collapse of Credit Suisse now moves to the lower house of parliament.
If the plan clears the lower house, Switzerland’s ruling Federal Council must draft an amendment to change the law. The council had rejected the motion in 2023.
Dominik Buholzer in this article says the politics threatens Swiss financial centre:

It is not up-and-coming financial centers such as Hong Kong, Singapore or Dubai that are making life difficult for Swiss banks. The biggest threat to them comes from domestic politics. 

People are rubbing their eyes in amazement. The call for a wage cap for banks was not made by the left, which has long had a hard time with the domestic financial center, but by the SVP.

The SVP is the same party that has always abhorred state interference in the private sector and whose party manifesto states that companies can only be successful if they have as much freedom as possible.

 

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The global drivers of private credit

March 25, 2025
Fernando Avalos, Sebastian Doerr and Gabor Pinter analyse the global drivers of private credit:

Private credit has grown rapidly over the past two decades and expanded into more and more industries. Cross-country evidence shows that the footprint of private credit is larger in countries with lower policy rates, more stringent banking regulation and a less efficient banking sector. Examining the cost of capital of business development companies (BDCs), an important private credit investment vehicle, reveals that banks’ initial funding advantage has substantially narrowed since 2010. The convergence in the cost of capital reflects a fall in BDCs’ cost of equity relative to that of banks and a rise in BDCs’ leverage. Private credit’s growth has therefore been bolstered, at least in part, by a relative improvement in its funding cost. 

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RBI History Fifth Volume (1997-2008) on RBI website

March 24, 2025

RBI has put up the fifth history volume covering the period 1997-2008 on its website.

All the other four volumes are also on the website:

Lots of history of all kinds in these five volumes.

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Evolution of Inflation Targeting from the 1990s to the 2020s: Developments and Challenges

March 24, 2025
Frederic Mishkin & Michael Kiley in this NBER paper review evolution of Inflation Targeting:

Since the initial launch of inflation targeting in the early 1990s in New Zealand and a few other countries, inflation targeting has become the predominant monetary policy strategy in large advanced and emerging market economies.

Inflation targeting has been remarkably successful in anchoring inflation, likely owing to core elements of the framework across central banks. Its reaction process, which adjusts the monetary policy stance to ensure the return of inflation to target, allows it to flexibly incorporate a wide range of factors while limiting the discretionary biases that can contribute to excessive inflation.

The emphasis on communications about the inflation outlook promotes transparency and accountability. As a result, inflation targeting central banks have, on balance, managed well the large shocks associated with the Global Financial Crisis and COVID. Even so, there are numerous challenges discussed in this paper that are associated with calibration and communications of forward guidance, quantitative easing/tightening, and financial stability.

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The structural transformation of the public space: High street changes and populism

March 21, 2025

Stephane Wolton, Samira Gasimova, Ricardo Paccioretti and Giuseppe Palladino in this voxeu research discusses interlinkages between commercial spaces and politics:

Independent shops and services lining high streets across the UK serve more than a commercial function. This column studies how different types of commercial spaces – from garages and convenience stores to pubs and bookshops – affected the electoral fortunes of the UK Independent Party from 2011 to 2019. The findings suggest that a decrease in independent consumer outlets yielded an increase in UKIP’s vote share for that postcode, while ‘branded’ consumer outlets had no such effect. The corresponding loss of social capital in communities where these venues disappear is a plausible mechanism behind these results.

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The early and free days of IIM Calcutta: A memoir by N. Krishnaji

March 21, 2025

N. Krishnaji, was a faculty in Statistics area at IIM Calcutta from 1965-73. He wrote a memoir of his life as an academic.

TheIndiaForum carries an excerpt from the memoir:

I joined IIMC in February 1965 as a research fellow, equivalent in rank to a university lecturer and was promoted within two years to the rank of an Assistant Professor, or Reader in university terminology. The story is worth telling.

After working with Krishnan on the projected FCI operations, I began working on some problems in probability distribution theory. I had the good fortune of having J.K. Sengupta (JK, who in the mid 1970s became Director of IIMC) as a senior colleague who along with Krishnan helped me a lot in my professional advancement. TNK asked me to share with him the teaching of a course on Demand Analysis (requiring a fair dose of quantitative methods) in the post-graduate programme. And JK left the teaching of econometrics almost wholly to me.

I enjoyed teaching; the students were of course among the best in the country, many of them IIT (Indian Institute of Technology) graduates, having come through several sieving processes and the horrors of entrance examinations at different levels from which only the best and the most enduring emerge with success to claim the final IIM prize. They enjoyed the classes taken jointly by JK and me, with JK holding forth on intricate theory and me trying to translate some of it into somewhat plainer language. JK simply forgot the audience in front and would suddenly veer to something like the Pontryagin Principle or Bang-Bang Control – sounds the students loved to hear without having a clue to what they are all about. I was left with the task of teaching them how to invert matrices (of orders three or even four) on hand-operated Facit calculating machines of those days.

Amazingly, the students were up to the task: they did regressions using data they collected for their individual project work – such as the demand for fertilisers in India, and produced good reports that inevitably earned them A grades. The student who did the classroom exercise on demand for fertilisers later became a top executive in the Fertiliser Corporation of India. As I said before they were the brightest and the best in the country and could absorb all that came their way in a classroom and the library.

To conclude the story about my promotion: In 1967, I had no publication to my credit or a PhD under my belt. Going up the ladder was solely based on my demonstrated ability to teach courses independently, not as an assistant. Indeed, the IIM system of those days allowed for this – something unimaginable these days with rigid rules for recruitment and promotion monitored by bodies totally ignorant of the worth of teaching or research and how it has to be assessed.

Simily unimaginable. There is a reason why this free-thinking system produced some really fine teachers.

Thanks TheIndiaForum for letting us know of this memoir!

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Changing Dynamics of India’s Remittances – From Gulf to Advanced Economies

March 21, 2025

RBI’s Bulletin (Mar-25 edition) has an article on changing nature of remittances to India.  It is written by Dhirendra Gajbhiye, Sujata Kundu, Alisha George, Omkar Vinherkar, Yusra Anees and Jithin Baby.

It is interesting to note that now share of remittances is higher from advanced economics (US. UK, Canada) replacing Gulf countries:

This article analyses the results of the sixth round of India’s remittances survey conducted for 2023-24. It captures various dimensions of inward remittances to India – country-wise source of remittances, state-wise destination of remittances, transaction-wise size of remittances, prevalent mode of transmission, cost of sending remittances and share of remittances transmitted through the digital modes vis-à-vis cash.

    • India’s inward remittances have more than doubled during 2010-11 to 2023-24 and have been a stable source of external financing during this period. Following a pandemic-led contraction during 2020-21, remittances to India in the post pandemic period recorded a significant surge.
    • The survey results indicate that the share of inward remittances from advanced economies has risen, surpassing the share of Gulf economies in 2023-24, reflecting a shift in migration pattern towards skilled Indian diaspora.
    • Maharashtra, followed by Kerala and Tamil Nadu, continue to be the dominant recipient of remittances.
    • The cost of sending remittances to India has moderated significantly, driven by digitalisation, but remains higher than the SDG target of 3 per cent.
    • Additionally, on an average, 73.5 per cent of total remittances received by the money transfer operators in 2023-24 were through digital mode.
    • Furthermore, fintech companies offer affordable cross-border remittance services, fostering competition among different remittance service providers.

Posted in Academic research & research papers, Central Banks / Monetary Policy, Economics - macro, micro etc, Financial Markets/ Finance, Indian Economy/Financial Markets | Leave a Comment »

A Teacher Writes to Students Series (41): Autistic Economics

March 19, 2025

A Teacher Writes to Students Series (41):   Autistic Economics
Annavajhula J C Bose, PhD
Department of Economics (Retd.), SRCC, DU

(more…)

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Saving Capitalism from Capitalists: twenty years later

March 19, 2025

Raguram Rajan and Luigi Zingales wrote this book titled Saving Capitalism from Capitalists which was published in 2003.

In the Capitalism and Freedom podcast with John Hartley, Rajan discusses the book twenty years later:

I want to talk just a little bit about an old book, actually, that you wrote a book in 2003. Titled Saving Capitalism from the Capitalists you wrote with Luigi Zingales. I’m curious, 20 years later, how do you think it’s held up? And you’ve written quite a bit recently on this topic of riskless capitalism. I’m curious what you mean by that.

>> Raghuram Rajan: So we wrote that book worried about cronyism and saying that both George Stigler and Karl Marx were worried about the same thing, business being in bed with the government.

And if there was a problem with capitalism, it was primarily that working to both stifle competition but also promoting authoritarianism. When they were in bed together, of course they had very different solutions. Stigler’s solution can be caricatured as get rid of the government. And Karl Marx was get rid of the business and let government run everything.

They’re caricatures, but I think that the problem still remains. And we’re seeing it in the United States today, that big business being very, very closely in bed with government on so many dimensions. We’re also seeing the revival of industrial policy where government decides it has all the foresight needed to pick winners.

And you know, coming from a country, Luigi coming from Italy, I coming from India, where we saw the dangers of these kinds of policies, we were trying to argue in that book that that one, it was very problematic when that happened. And second, that the only surefire way of creating a pro-competitive environment was openness, including trade openness.

It was competition from the people you don’t control that keeps cronyism under check because you know so long as you’re open or forced to be open, your people have to compete with the rest of the world. Of course we were aware, but we didn’t anticipate the extent to which there would be a movement to closing down the borders and to protect.

Given how we had seen how bad that could be in our economies, we thought the US would not move in that direction. We certainly there have been other forces which have moved us in that direction. I think primarily the force of technology. Technological change, as always, has been huge.

And people blame the loss of middle-income jobs to globalization. But as you know, most economists would say the bigger factor is technological change and that’s killed a lot of middle income jobs, creating the reaction. And that reaction to some extent has been deflected towards globalization. I think globalization bears only part of the blame.

And what we’ve done as a result is created the environment where everything closes down. And that I think will serve us very, very poorly.

Rajan also discusses his wider research work and his stint as RBI Governor.

 

Posted in Academic research & research papers, Central Banks / Monetary Policy, Economics - macro, micro etc, Financial Markets/ Finance, Indian Economy/Financial Markets, Speech / Interviews | Leave a Comment »

Impact of pastoral visits of Pope John Paul II on international trade

March 18, 2025
Alexander Popov of ECB in this research looks at impact of Pope John Paul II visits to different countries on interenational trade:
During his reign from 1979 to 2005, Pope John Paul II visited 129 countries, more than the 263 Popes before him combined. I document a significant increase in exports to trading partners with a relatively high share of Catholics following a Pastoral visit, leading to a non-negligible increase in aggregate exports. The biggest beneficiaries in terms of increased trade are visited countries that are at lower stages of economic development and have relatively few Catholics and weak trade links. The effect is absent for other prominent episodes, such as global sports events or visits by political dignitaries.

Posted in Academic research & research papers | Leave a Comment »

Rarefied world of central bank chiefs who became PMs

March 18, 2025

Mark Carney was elected as Prime Minister of Canada. He joins this really rare list of individuals who first head central banks and then go onto become Prime Ministers/Presidents of their respective countries.

My article in Moneycontrol where I look at individuals that became heads of governments. The article also looks at individuals that occupied both the positions of central bank governors and finance ministers.

Posted in Academic research & research papers, Central Banks / Monetary Policy, Economics - macro, micro etc, Financial Markets/ Finance | Leave a Comment »

Adam Smith’s capitalism demands constraints on markets, not blind faith in them

March 17, 2025

Oren Cass in IMF F&D (March 2025) edition reiterates what has been said multiple times but yet not understood: Adam Smith’s invisible hand is not what economists have made it out to be.

The academic economist’s dry prose usually benefits from an evocative metaphor. But we would all be better off if Adam Smith had skipped the bit about “the invisible hand.” He meant little, if anything, by it—he used the term only once in the entire two volumes of The Wealth of Nations, as he had a single time, in an entirely different context, in The Theory of Moral Sentiments.

But in the second half of the 20th century, economists built an entire worldview around it, engendering the baseless assumption that, in the words of Pat Toomey, a former US senator, “capitalism is nothing more than economic freedom,” that, left untended, it just works. Like the cartoon character Wile E. Coyote, they marched forward with plans lacking any means of support. Except it is not the economists who fell to the bottom of the ravine when their folly was discovered, it was the average citizen.

Understanding the term requires first visiting it in its natural habitat: “By preferring the support of domestic to that of foreign industry, he intends only his own security,” Smith wrote, “and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” The invisible hand did not refer to a magical force, but to the preference for domestic industry and the determination to direct industry toward produce of the greatest value.

And so, for most of its history, the invisible hand was given precisely the little attention it deserved. But drop “led by an invisible hand” into Google Ngram, plotting the frequency with which it appears across all English-language books since 1800, and just after World War II the phrase begins an inexorable march upward. Determined to defend democratic capitalism from enthusiasm for communism’s central planning, economists like Paul Samuelson and Friedrich Hayek adopted Smith’s metaphor and placed it at the center of their free market’s logic.

Posted in Academic research & research papers, Economics - macro, micro etc, Financial Markets/ Finance, Growth and development | Leave a Comment »

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