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”

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”

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”

The Swedbank case

Out of the several money laundering cases in recent years, two of the most disturbing were those of Danske Bank and Swedbank, mainly because they were headquartered in Nordic countries where such cases were rare. Moreover, these countries are known for high standards of living, and very low levels of crime and corruption. Continue reading “The Swedbank case”

The Wirecard Scandal

Germany is not particularly known for corporate scandals. Unlike the USA or UK. Or the rest of Europe. The last big one was Volkswagen. But, one involving Wirecard, the payment processing firm with a global footprint, has been unravelling over the last one week, since Ernst & Young (EY), the company’s auditors, announced that it could not find USD 2.1 billion (Euro 1.9 billion), roughly a quarter of the balance sheet size. This is a first for the DAX, a 30-member index trading on the Frankfurt Stock Exchange. Continue reading “The Wirecard Scandal”

IMF’s Global Financial Stability Review, April 2020: Markets in the Time of Covid-19

The IMF released yesterday the first chapter of its half-yearly Global Financial Stability Review (GFSR) for April 2020. The GFSR “provides an assessment of the global financial system and markets, and addresses emerging market financing in a global context. It focuses on current market conditions, highlighting systemic issues that could pose a risk to financial stability and sustained market access by emerging market borrowers. The Report draws out the financial ramifications of economic imbalances highlighted by the IMF’s World Economic Outlook.” Continue reading “IMF’s Global Financial Stability Review, April 2020: Markets in the Time of Covid-19”

Covid-19 pandemic and banking regulation

Tobias Adrian and Aditya Narain of the IMF, in their article titled “Maintaining Banking System Safety amid the COVID-19 Crisis” (31 March 2020), suggest how national band supervisors should respond to ensure continued trust and confidence in the banking system. Continue reading “Covid-19 pandemic and banking regulation”

Covid-19 pandemic: Dealing with the financial impact

Agustin Carstens, General Manager, Bank for International Settlements, in an op-ed piece in the Financial Times (30 March 2020), has raised concerns about the impact of the corona virus pandemic on global financial markets. Continue reading “Covid-19 pandemic: Dealing with the financial impact”

Reforming Deposit Insurance

This is an old article going back to 2000. It is a comment on the recommendations of the Committee on Deposit Insurance in India (Chairman: Jagdish Capoor, 2000). Continue reading “Reforming Deposit Insurance”

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