The third and final part of the series on history of money has been released. The three part series is as follows:
History of Money (Part I) | From cowries to cryptocurrency 
History of Money (Part II) | Currencies, banking and crises
History of Money (Part III) | From Bitcoin to central bank digital currency
Happy reading.

This entry was posted on March 5, 2021 at 2:36 pm and is filed under Academic research & research papers, Central Banks / Monetary Policy, Economics – macro, micro etc, Financial Markets/ Finance. You can follow any responses to this entry through the RSS 2.0 feed.
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Steven Dorst in this IMF article reflects on lessons from three countries:
Never let a serious crisis go to waste.” Innovators around the world are taking the saying seriously, responding to the disruption caused by the COVID-19 pandemic with creative digital solutions.
The initiatives we highlight here are markedly diverse: the overnight transformation of Sri Lanka’s 125-year-old live tea auction; the world’s first central bank digital currency in The Bahamas; and the rapid pivot from a taxi-hailing app in Kampala, Uganda, to a thriving e-commerce platform.
All three share a common characteristic: an innovative, entrepreneurial spirit born of an urgent need. The Bahamas initiative responded to a need to extend financial services to residents of remote islands whose lack of access was

Fernando Avalos and Dora Xia in this BIS research:
Massive redemptions at money market funds (MMFs) investing primarily in high-quality short-term private debt securities were an important feature of the market dislocations in March 2020. Building on previous studies of the underlying drivers, we find that large investors’ withdrawals did not differentiate across prime institutional MMFs according to these funds’ asset liquidity positions. We also find that, faced with large redemptions, the managers of these funds disposed of the less liquid securities in their portfolios, marking a departure from their behaviour in tranquil times. This is likely to have exacerbated market-wide liquidity shortages. After the Federal Reserve’s announcement of the Money Market Mutual Fund Liquidity

Prof Brad Delong writes for Proj Syndicate:

After so many years of hand-wringing over disappointing US economic growth, it is odd to hear prominent economists sounding the alarm about the mere possibility of inflation. If anything, we should want an economy in which a higher federal funds rate is warranted.

This entry was posted on March 5, 2021 at 11:07 am and is filed under Academic research & research papers, Central Banks / Monetary Policy, Economics – macro, micro etc, Financial Markets/ Finance. You can follow any responses to this entry through the RSS 2.0 feed.
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Tommaso Mancini-Griffoli in this IMF article:
My dear mother,
I hope this letter finds you well, back in Italy. We are fortunate to have just visited; now we’ll go back to seeing each other on screen for a few months. Still, how far we’ve come since the immigrants of the last century who could only write letters—and hope they would eventually arrive. And yet, as I unpacked, I found remnants of our visit: euro notes, unused from my trip and now souvenirs of my stay. If only I could send them back as easily as I can call you. It might not be long before this is possible.
The cash you spend at the market may one day be replaced by a central bank digital currency. Yes, the stuff I work on at the IMF, which you always ask about and we never find time to discuss.

Eric Jondeau, Benoit Mojon and Cyril Monnet in this new BIS paper:
In anticipation of a risk of runs on brown assets and a resulting pooling equilibrium, low- and high-emissions firms are not easily differentiated by external investors. As a result, all firms face the same initial funding costs ahead of production, and some high-emissions firms will be unable to subsequently refinance their activity because investors will not take the risk of financing them.
The findings also show that a liquidity backstop – whose pricing takes the form of an access fee proportional to carbon emissions, and a borrowing rate that is independent of carbon emissions – helps in greening the economy, re-establishing production efficiency, while avoiding runs. The access fee incentivises the highest

Governor François Villeroy de Galhau of Banque De France in this speech:

The past twelve months have seen some of the most dramatic events since World War II, with this unprecedented pandemic. For this reason, and given that today is about the Financial Stability Review, I will focus on the concept of stability itself. Other sources of instability have affected the world economy in the past decade or so: the Global Financial Crisis and ensuing recession, the European Debt Crisis, or more recently rising trade tensions. It seems that the world has become more unstable. Against this backdrop, stability is all the more important for our fellow citizens, and it has different dimensions, but I will focus mainly on three key aspects.
I will start (and it will be a surprise to no one)

New NBER paper by Itai Ashlagi and Al Roth:
Many patients in need of a kidney transplant have a willing but incompatible (or poorly matched) living donor. Kidney exchange programs arrange exchanges among such patient-donor pairs, in cycles and chains of exchange, so each patient receives a compatible kidney. Kidney exchange has become a standard form of transplantation in the United States and a few other countries, in large part because of continued attention to the operational details that arose as obstacles were overcome and new obstacles became relevant.
We review some of the key operational issues in the design of successful kidney exchange programs. Kidney exchange has yet to reach its full potential, and the paper further describes some open questions that we hope will

Ahmedabad University’s 2nd Annual (virtual) Economics Conference is coming up this week. Interested can register here. Schedule of conference is here:
Ahmedabad University will hold its “2nd Annual Economics Conference, 2021” from 4th – 6th March, 2021. The theme of the Conference is “Economics in Challenging Times”.
Due to the continued uncertainties related to the COVID-19 pandemic, the conference will be held via the online platform. This year, we are inviting more than 20 distinguished economists from across the globe to share their recent research work with us.
The inaugural address will be delivered by Dr. C. Rangarajan (former Governor of the Reserve Bank of India from 1992-98), followed by multiple panels on various fields of economics. We have broadly divided the sessions

Superb piece by Riddhima Saxena of BQ on the mystery named State Bank of Sikkim. SBS was established in 1968 and has remained outside of RBI purview. There are talks that it is now being brought under RBI but there is no mention of it on websites of either RBI or SBS.
Riddhima points to this interesting CAG report on Sikkim which has some details on SBS:
There are three Statutory Corporations in the State, namely, State Bank of Sikkim, State Trading Corporation of Sikkim and Sikkim Mining Corporation established under the proclamation of the erstwhile Chogyal (King) of Sikkim. The accounts of these Corporations are audited by the Chartered Accountants directly appointed by the Board of Directors (BoDs) of the respective Corporation.   
The SBS audit showed NPA of close to 46%:

There

From Moneyandbanking blog
Since 2007, and especially over the past year, actions of public officials have blurred the lines between monetary and fiscal policy almost beyond recognition. Central banks have expanded both the scope and scale of their interventions in unprecedented fashion. This fiscalization risks central bank independence, thereby weakening policymakers’ ability to deliver on their mandates for price and financial stability. In our view, to find a way to back to the pre-2008 division of responsibilities, officials must establish clearer limits on what central banks can and cannot do.
……
So, what should central banks do and not do?
First, it is fiscal authorities that ought to make the unavoidably political choices that directly influence resource allocation. Governments

Prof Gregory Clark in this new paper (HT: MR blog):
Economics, Sociology, and Anthropology are dominated by the belief that social outcomes depend mainly on parental investment and community socialization. Using a lineage of 402,000 English people 1750-2020 we test whether such mechanisms better predict outcomes than a simple additive genetics model. The genetics model predicts better in all cases except for the transmission of wealth. The high persistence of status over multiple generations, however, would require in a genetic mechanism strong genetic assortative in mating. This has been until recently believed impossible. There is however, also strong evidence consistent with just such sorting, all the way from 1837 to 2020. Thus the outcomes here are actually the product of an

Ruchir Agarwal, Ina Ganguli, Patrick Gaulé and Geoff Smith in this new IMF WP:
This paper studies the impact of U.S. immigration barriers on global knowledge production. We present four key findings. First, among Nobel Prize winners and Fields Medalists, migrants to the U.S. play a central role in the global knowledge network—representing 20-33% of the frontier knowledge producers. Second, using novel survey data and hand-curated life-histories of International Math Olympiad (IMO) medalists, we show that migrants to the U.S. are up to six times more productive than migrants to other countries—even after accounting for talent during one’s teenage years. Third, financing costs are a key factor preventing foreign talent from migrating abroad to pursue their dream careers, particularly

Yan Carriere-Swallow, Vikram Haksar and Manasa Patnam in this IMF paper:
We examine how the development of the digital infrastructure known as the “India Stack”—including an interoperable payments system, a universal digital ID, and other features—is delivering on the government’s objective to expand the provision of financial services. While each individual component of the India Stack is important, we argue that its key overarching feature is a foundational approach of providing extensive public infrastructures and standards that generates important synergies across the layers of the Stack.
Until recently, a large share of India’s population lacked access to formal banking services and was largely reliant on cash for financial transactions. The expansion of mobile-based financial

Here is my attempt to write history of money in three part series on Moneycontrol. The first two parts are out:
History of Money (Part I) | From cowries to cryptocurrency
History of Money (Part II) | Currencies, banking and crises
Part – III to be released on 4th Mar 2021.

This entry was posted on March 1, 2021 at 4:22 pm and is filed under Academic research & research papers, Central Banks / Monetary Policy, Economics – macro, micro etc, Financial Markets/ Finance, Indian Economy/Financial Markets. You can follow any responses to this entry through the RSS 2.0 feed.
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1 March 2021 marks 75 years of natioanlisation of BoE.
Austen Saunders writes a post in Bankunderground blog:
1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. During these negotiations Catto lobbied for the Bank not to be given more powers to regulate banks. Why? The answer hinges on how the Bank understood its role. And it helps explain why, as David Kynaston sees it, the Bank and the government ‘missed a historic opportunity’ to comprehensively redefine the Bank’s responsibilities.
This was different from RBI’s nationalisation in Jan-1949

Prof Mircea Raianu of University of Maryland, College Park in this THeIndiaForum article:

RK Hazari’s landmark work on corporates in 1960s India holds lessons for contemporary questions on promoting small and medium firms and ensuring effective corporate governance. These questions are all the more crucial in times of rising income inequality.

This entry was posted on March 1, 2021 at 2:13 pm and is filed under Academic research & research papers, Economics – macro, micro etc, Indian Economy/Financial Markets. You can follow any responses to this entry through the RSS 2.0 feed.
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Bhanu Pratap, Ranajoy Guha Neogi and Jibin Jose of RBI in RBI’s Feb-21 Monthly Bulletin:
What is an appropriate measure of bank value? This article argues that price-to-book ratio (PBR) of banks may be considered as an alternative measure of bank value to better understand their health and stability in the Indian context.

While there are several indicators such as capital adequacy ratios, Z-scores, and profitability, none of them comprehensively capture the viability of the underlying business models of banks. Moreover, such standard indicators often change due to shifts in the regulatory environment without necessarily reflecting a fundamental change in the health of banks.
Through credit intermediation, banks generate valuable intangible assets, such as private information on

Rober Cole of RBNZ in this research note:

The 2010-11 Canterbury earthquakes are by far the most costly insurance event in New Zealand’s history with estimated property insurance claims costs of around $38 billion, and remain one of the most significant globally. The Funding and reserving Canterbury earthquake insurance claims Analytical Note provides a hindsight review of the funding and reserving of Canterbury earthquake claims after 10 years. There are valuable lessons for insurers and the Reserve Bank (as insurance regulator) to be drawn from a significant event such as the Canterbury earthquakes, for dealing with future catastrophic events. The Analytical Note explores the funding of property insurance claims costs and the development over time of insurer estimates of the cost

RBI has revived the Report on Currency and Finance which was last published in 2014.
RCF was theme based report. The theme for 2020-21 edition is reviewing RBI’s Monetary Policy Framework. The report says RBI should continue with the current target of 4% (band of +/-2%):

In the international experience, inflation targeting emerging market economies (EMEs) have generally lowered their inflation targets and narrowed tolerance bands.
During the period under review, headline CPI inflation averaged 3.9 per cent in India with a decline in inflation volatility, attesting to the success of FIT in terms of its primary mandate.
Trend inflation to which actual inflation converges after a shock provides an appropriate benchmark for the inflation target; trend inflation has fallen from above 9

Manoj Pradhan and Charles Goodhart in this voxeu research:

Milton Friedman and Bill Phillips most likely assumed that their separate methods for predicting inflation would lead to much the same outcomes. Recently, however, monetary aggregates and the Phillips curve have provided extremely disparate signals. This column discusses recent economic developments leading to these disparate signals, concluding that inflation will most likely end up somewhere between the predictions of the two models – which is almost certainly higher than what central banks and the IMF are expecting.

This entry was posted on February 26, 2021 at 1:54 pm and is filed under Academic research & research papers, Central Banks / Monetary Policy,

Paola Di Casola of Riskbank in this research:
In a time when traditional monetary policy tools such as the policy rate is approaching the possible lower bound, central banks in many parts of the world had to expand their toolboxes. An increasing number of them have therefore taken measures that have caused their balance sheets to increase.
For instance, in November in Sweden the Riksbank decided to purchase securities for up to SEK 700 billion, to counteract the effects of the coronavirus pandemic. Previously, the Riksbank has implemented balance sheet policies during the financial crisis period of 2008-2010 and during 2015-2017.
This type of measures have so far only been implemented during a limited period of time, so how can we know what effect they have on economic conditions? The

Yohan Iddawela, Neil Lee and Andrés Rodríguez-Pose in this voxeu piece:
Differences in the quality of local and regional governments and their implications for development have attracted considerable attention, especially in Europe and Asia. In Africa, the recent drive towards decentralisation has, however, neglected how variations in the quality of sub-national governments affect development prospects. This column addresses this gap in knowledge by measuring variations in subnational government quality in 22 African countries, and connecting these variations to differences in levels of development across the continent. The quality of sub-national governments is an important driver of economic development in African regions.

David Chaum, Christian Grothoff, Thomas Moser of Swiss National Bank in this paper:
With the emergence of Bitcoin and recently proposed stablecoins from BigTechs, such as Diem (formerly Libra), central banks face growing competition from private actors offering their own digital alternative to physical cash. We do not address the normative question whether a central bank should issue a central bank digital currency (CBDC) or not. Instead, we contribute to the current research debate by showing how a central bank could do so, if desired. We propose a token-based system without distributed ledger technology and show how earlier-deployed, software-only electronic cash can be improved upon to preservetransaction privacy, meet regulatory requirements in a compelling way, and offer a level

The year 2021 marks 100 years of Tamilnad Merchantile Bank (TMB).
The Nadar Mahajan Sangam decided to open a bank in 1920 to serve the Nadar Business Community.  In May-1921 they registered a bank named Nadar Bank in Tuticorin. The bank opened to public in Nov 1921.  The bank was renamed as Tamilnad Merchantile Bank on November 27, 1962.
Hoping the bank releases a coffeebook/compendium on the anniversary in May-2021.

This entry was posted on February 24, 2021 at 4:24 pm and is filed under Academic research & research papers, Indian Economy/Financial Markets. You can follow any responses to this entry through the RSS 2.0 feed.
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In 2020, Central banks of Thailand and HongKong had announced a joint digital currency project for cross-border payments.
Now People’s Bank of China and UAE Central Bank have joined the project:
The Hong Kong Monetary Authority (HKMA), together with the Bank of Thailand (BOT), the Central Bank of the United Arab Emirates (CBUAE) and the Digital Currency Institute of the People’s Bank of China (PBC DCI), today announced the joining of the CBUAE and the PBC DCI to the second phase of Project Inthanon-LionRock1, a central bank digital currency project for cross-border payments initiated by the HKMA and the BOT.This joint effort is strongly supported by the Bank for International Settlements Innovation Hub Centre in Hong Kong and the project has been renamed as “m-CBDC Bridge”.

US Federal and state financial regulatory agencies have issued an interagency statement:
The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the state regulators, collectively the agencies, recognize the serious impact of Texas Winter Storms on the customers and operations of many financial institutions and will provide appropriate regulatory assistance to affected institutions subject to their supervision. The agencies encourage institutions operating in the affected areas to meet the financial services needs of their communities.
Perhaps this will be the order of the day to deal with climate change related disasters.

This research by Riksbank econs asks the question:
Digital central bank currencies are money that can either be held in an account with the central bank (account-based) or as digital units of value (token-based). Both types of digital central bank currency require, however, that there are one or more registers behind them, keeping track of who owns the money.
The link to these registers means that neither the token-based nor the account-based money can offer the same anonymity as cash, as the transactions will be traceable.
Nor will offline payments, where there is no communication with the register, be possible to any great extent. A token-based CBDC does not appear to have a greater capacity to fully replicate cash than an account-based one in this respect.
Hmm.. Perhaps a

I had blogged about how State Bank of Sikkim remains outside of purview of RBI.
So much so, SBS operates as a quasi central bank cum commercial bank for State of Sikkim.
The State Bank of Sikkim was established in the year 1968 and has a total of 42 branch offices and 3 Revenue Counters, thereby aggregating to a total of 45 branch locations spread all over Sikkim which inclues Head Office. The Bank is headquartered in the State Capital of Sikkim, Gangtok. The Bank is an autonomous body under the Government of Sikkim. The Bank operates within the jurisdiction of the State of Sikkim and is responsible to handle the treasury function of the State as well. The branches of the bank are now on CBS platform. The Bank is headed by the Board of Directors and Managing Director of the Bank is

Miroslav Singer, former Governor of Czech National Bank writes in this OMFIF piece. He says broader mandate of central banks such as green financing and gender balancing could lead to loss of independence:

Politicians allowed central banks to become independent and they can take that independence away again. But there are only three reasons why they might do so.
First, if a central bank causes hyperinflation through mismanagement, it loses credibility as guardian of a stable domestic currency. This can lead to the currency being abandoned, the introduction of a board or the use of a universally accepted foreign currency, such as the dollar. The governor and senior management of the central bank could be replaced. Alternatively, a new institution may be established, as happened in