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”

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”

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”

Why this blog

It was Bertrand Russell (or maybe Bernard Shaw in one of his long introductions) who wondered what an overthrown official would do thereafter. In ancient Greece, he speculated, the deposed official would round up mercenaries and attack his city state. The unseated Chinese civil servant, he added, would retire to the hills and write poetry. A retired Indian bureaucrat, I believe, would write his memoirs or set up an NGO. Continue reading “Why this blog”

Best Books on Keynes

Keynes on the cover of TIME

No other economist would have probably had more books written on his life than John Maynard Keynes. I am currently reading, slipping in time whenever I can, a recent book by Zachary D. Carter, “The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes” (Random House, New York, 2020). I hope to able to write a brief review of the book soon. Continue reading “Best Books on Keynes”

Andrew Bailey at Jackson Hole

Central bank balance sheet as a policy tool: past, present and future

Andrew Bailey

Mr. Andrew Bailey, Governor, Bank of England, delivered the opening remarks on the second day of the Kansas City Fed’s annual Jackson Hole Symposium, on 28 August 2020. He spoke on “Central bank balance sheet as a policy tool: past, present and future”, based on a paper (see here) with the same title, prepared jointly with Jonathan Bridges, Richard Harrison, Josh Jones and Aakash Mankodi. Continue reading “Andrew Bailey at Jackson Hole”

error: Content is protected !!