Frauds, terrorism, and bathtub curve

Lessons from reliability and bathtub curve for busting crimes

Photo by Andrea Lambrecht on Unsplash

Frauds and terrorism

Formidable military cantonments with awe-inspiring security have existed for centuries. Treasure, including notes and coins, have also moved for centuries. Banks have time-honoured systems and processes for internal control and audit.

Nevertheless, we hear of security breaches in military establishments. The choice of time, location, and other details point to a high level of planning. Daring and well-planned train robberies involving sovereign treasure make some Western flicks seem like minor pickpocketing. Bank frauds the size of several Satyam frauds point to governance failures from top to bottom. Investigations followed, and responsibility fixed. The immediate causes were familiar. System failures, noncompliance with laid down procedures, and ignoring established norms. One rarely identified root causes to see why noncompliance took place. And what actions could prevent them in the future. Continue reading “Frauds, terrorism, and bathtub curve”

Fintech and Financial Stability

A critical look at IMF recommendations on financial stability concerns from Fintech and DeFi

Decentralized Finance
Photo by Shubham Dhage on Unsplash

Fintech and financial stability

Fintech is technological innovation in financial activities, or in other words, financial innovation aided by technology. This by itself is not new. The ATMs which made their entry in the late 1960s was also in this sense, fintech. With the rapid growth in crypto assets in recent years, and that of decentralised ledger technology (DLT), fintech has evolved and grown rapidly in recent years to provide traditional banking functions, including deposit taking and lending. Referred to as Decentralized Finance, or DeFi for short, it threatens to disintermediate banks from savers and borrowers, transform the traditional banking landscape, and threaten financial stability. The IMF flagged its concerns in the third chapter of the April 2022 issue of its biannual Global Financial Stability Report (GFSR). Continue reading “Fintech and Financial Stability”

Why People Wore Masks

An overview of research findings explaining mask compliance across countries

Social distancing and mask compliance
Photo by Maxime on Unsplash

Introduction

According to Francis Fukuyama, leading political thinker, institutional arrangements, including increasing judicialisation and influence of interest groups, constrict decision making in democracies. These along with legally mandated checks and balances can slow decision making in crises. Fukuyama was writing in the US context (The Origins of Political Order, 2011; Political Order and Political Decay, 2014). But, India too is no exception. This perhaps explains the need for seemingly autocratic decisions. Whatever be the method, public view and experience of governmental decisions, through law or regulation, are manifested in compliance. Continue reading “Why People Wore Masks”

CBDC and the Future of Money

My review of Eswar Prasad’s new book on fintech, cryptos, and CBDC: Future of Money: How the Digital Revolution is Transforming Currencies and Finance

Contents

Introduction
Fintech
Crypto Mania
Regulatory Concerns
Central Bank Concerns
National Responses
Central Bank Digital Currency
Relevance of CBDC
Critique of CBDC
CBDC and EMEs
Whether CBDC and when
Designing CBDC
Current status of CBDC and lessons
Impact on cash
Impact on dollar
Global currency
CBDC in India
Conclusion
Postscript

Introduction

Future of Money

William Stanley Jevons started his career as an assayer in a mint in Sydney. In 1855, sending money to his father, Jevons wrote:

“I must say the money has given me very little satisfaction, except that of sending it home. Whether in the bank or in your pocket I find £100 like a very disagreeable weight on the mind, so I shall be very glad when it is off my hands, though I hope safe in yours.”

Harriet A. Jevons, ed., Letters and Journal of W. Stanley Jevons, p. 52

In 1875, as a professor of ‘political economy,’ Jevons laid down the functions of money in Money and the Mechanism of Exchange. These are unit of account, store of value, and medium of exchange. Money combined these functions performed earlier by different objects. Even today, it remains a useful framework for assessing currencies. Continue reading “CBDC and the Future of Money”

Bank of Russia in War and Peace

How Bank of Russia and Russian Central Banking is coping with war and other political expediencies

Central Bank of Russian Federation Head Office building
Bank of Russia

War and Peace

War and Peace, Tolstoy’s enduring masterpiece, starts with a party scene. Set in the St Petersburg of 1805, the main characters are introduced here. Most of us would have read the ‘novel’ (Tolstoy did not call it one) in English. Lost in translation is the fact that almost the entire conversation, page after page, is in French. It was the preferred language of the Russian aristocracy. For Tolstoy, it was a literary device. He was making fun of the nobles of the day who spoke French to flaunt their exclusivity. He wanted to show how disconnected they were from core Russian values and the world around. Continue reading “Bank of Russia in War and Peace”

Holmes and the Theranos Affair

Lessons from Theranos for Corporate Governance

Elizabeth Holmes, founder and CEO of Theranos
Elizabeth Anne Holmes, founder and CEO of Theranos

This Holmes was the subject of many investigations and a trial that ended in conviction. She was not just complicit. She was the perpetrator. If the DOB (Directors on Board) did not bark or howl, they were well taken care of. Even if they whined, she charmed her way through. In any case, they seemed keen to add a new generation tech firm to an already impressive list of credentials. They were victims of the promise or illusion of mentoring the next Bill Gates or Steve Jobs.

Such a bland assessment would have been kosher for most ordinary Boards. But we have here the likes of George Shultz (1920-2021), former Secretary of State, and also of labour and treasury, best known as the man who ended the cold war. If Shultz was not enough, we have Henry Kissinger (b. 1923), former secretary of state, and William Perry (b. 1927), former secretary of defence. All of them were then, or are now, in their 90s. The Holmes-Theranos affair offers interesting lessons for good corporate governance. Continue reading “Holmes and the Theranos Affair”

Ten economic predictions for 2022

Predictions

“Prediction is very difficult, especially if it’s about the future” is a famous quote attributed in different forms to people ranging from Niels Bohr, the great physicist and Nobel Laureate, to Yogi Berra, the all-time great baseball catcher. But, that has never deterred predictions, especially economic predictions, as a universal beginning-of-the-year pastime. Continue reading “Ten economic predictions for 2022”

Jackson Hole Symposium 2021

If the US pullout from Afghanistan signalled its disinclination to be the policeman of the world at the cost of its men and money, this year’s Jackson Hole Symposium and Chairman Powell’s address mark a no less strong aversion to being the central banker of the world. That it came in the 50th anniversary month of President Nixon snapping dollar convertibility into gold is particularly apt. This post is an overview of some of the presentations held at Jackson Hole Symposium 2021. Continue reading “Jackson Hole Symposium 2021”

100 years of the South African Reserve Bank

Background

Logo of the South African Reserve Bank

There are two reasons why I am celebrating the centenary of the South African Reserve Bank (SARB). First, I learnt my first lessons in central banking as an undergraduate in 1978 from the classic book on central banking by M.H. de Kock (see here). A legendary and longest serving Governor of the SARB, de Kock’s book went into four editions in his lifetime. It was also popular across the world. References to the Bank and its history were therefore inevitable in my lectures on central banking over the years. Continue reading “100 years of the South African Reserve Bank”

Alan Turing – The Madras Connection

The Bank of England

What do the Bank of England, Benedict Cumberbatch, Nandan Nilekani, the Second World War, mathematical biology, Mettur Dam, the humble punkah, and Chatrapur have in common? For added measure, one might add the Madras Railway, Tungabhadra Bridge, Coonoor, the German U-Boats, cryptography, and Bletchley Park, once the top-secret home of British code breakers. The answer is Alan Turing, mathematician and philosopher. He contributed to cryptography and mathematical biology, among other subjects, and is the father of modern computer science. Continue reading “Alan Turing – The Madras Connection”

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