Author Archives: Dirk Niepelt

Postscript on Belgrade

The (once?) famous b92 station and Christen Farmer‘s b92 blog “Grumpy in Belgrade” (also published as a book). Nicola Tesla museum and airport. Corruption measures compiled by Transparency International. Euro Money country risk assessment. Saint Sava’s Temple, “Belgrade’s Sagrada Família.” Property market and country assessment by Global Property Guide.

National Bank of Serbia

The NBS occupies a beautiful 19th century residence with a visitors’ center in Belgrade’s city center as well as a large modern complex nearby.

In 1875, the first Dinar was minted. After Serbia’s independence in 1878, the country joined the Latin Monetary Union and Dinar and Franc could be exchanged at parity. In 1884, the Privileged National Bank of the Kingdom of Serbia was established. A businessman contributed to the capital of the Bank and served as governor. The National Bank continued to operate as the Kingdom of Serbia turned into the Kingdom of Serbs, Croats and Slovenes (1918); the union of South Slav states; Yugoslavia; and the Republic of Serbia (Videos).

Serbia

The Serbian language uses both the Cyrillic and the Latin alphabet; it’s the only European standard language with complete synchronic digraphia.

The Serbian economy continues to suffer from the sanctions imposed in the 1990s and it also suffers from very severe brain drain. Between 2009 and 2014, the public debt quota grew from 30% to more than 60%; inflation has fluctuated between up to 14% and, recently, below 2%; and the interest rate still exceeds 7% (source). The Dinar has depreciated against the EUR at a rate of roughly 4% per year over the last five years (source). Household debt is mostly denominated in EUR or USD.

Vinča

A few miles east of today’s Belgrade lies a Vinča settlement that dates back to 5000 BC. The Vinča civilization relied on fishing, farming and mining (copper); the Vinča people built houses along streets; and they exchanged goods. They also used an early form of proto-writing (sources: Belgrade tourism site, Wikipedia).

Alex Whitaker writes on his site Ancient Wisdom:

In 1908, the largest prehistoric Neolithic settlement in Europe was discovered in the village of Vinca, just a few miles from the Serbian capital Belgrade, on the shores of the Danube. Vinca was excavated between 1918 and 1934 and was revealed as a civilisation in its own right. Indeed, as early as the 6th millennium BC, three millennia before Dynastic Egypt, the Vinca culture was already a fully fledged civilisation. A typical town consisted of houses with complex architectural layouts and several rooms, built of wood that was covered in mud. The houses sat along streets, thus making Vinca the first urban settlement in Europe, but being far older than the cities of Mesopotamia and Egypt. And the town of Vinca itself was just one of several metropolises, with others at Divostin, Potporanj, Selevac, Plocnik and Predionica.

Contagion in the Euro Area

In a Vox column, Michal Kobielarz, Burak Uras and Sylvester Eijffinger argue that the  re-emergence of spreads between peripheral and core Eurozone countries at the beginning of the Greek crisis reflected contagion fears. They write:

… we explicitly model the endogenous bailout decision of the European Monetary Union. We assume that:

  • A country that defaults on its sovereign debt can no longer remain in the EMU, unless it is bailed out;
  • The union values each country’s membership and, therefore, suffers a loss if a country exits; and
  • The marginal loss associated with allowing a country to leave the union is highest if that particular country is the first to leave (first-exit effect).

… once the first country is gone, letting a second country default and leave the union is not that costly anymore.

Polish History

Frequent territorial change characterizes the eventful and troublesome history of Poland (video). This history is evident all over the place when walking the streets of Warsaw, for example in the historic city that was destroyed in 1944 and rebuilt afterwards, the memorials in its vicinity, or Stalin’s unloved gift to the Polish nation. The Poles value their new found freedom and are acutely aware of threats to it.

Real Interest Rates

James Hamilton, Ethan Harris, Jan Hatzius and Kenneth West have computed historical time series for real interest rates in several countries (paper, blog post). The authors argue that there is significant uncertainty surrounding the equilibrium real rate—but no strong evidence for “secular stagnation.” They also argue that the uncertainty calls for inertial monetary policy. The paper includes many figures, for instance on this page a figure about US and UK real rates.

Apostolos Doxiadis and Christos Papadimitriou’s “Logicomix”

“Logicomix: An Epic Search for Truth” (Wikipedia) is a nice graphic novel by Apostolos Doxiadis and Christos Papadimitriou about Bertrand Russell’s life and work. Whitehead, Frege, Poincaré, Hilbert, Wittgenstein, Gödel, von Neumann and many others as well as Greek tragedy make appearances.

Limits on Cash Withdrawals?

Andreas Valda reports in Der Bund about speculation that the Swiss National Bank (SNB) and/or commercial banks may limit cash withdrawals in response to negative CHF interest rates. According to the report, SNB press officer Walter Meier clarified the instruments at the SNB’s disposal as follows:

Die Nationalbank hat sich gemäss Gesetz bei der Ausgabe von Banknoten nach den Bedürfnissen des Zahlungsverkehrs zu richten; sie kann dafür Vorschriften über die Art und Weise, Ort und Zeit von Notenbezügen erlassen. … [Solche Vorschriften] würden gegenüber Bargeldbezügern bei der SNB gelten, also typischerweise Banken und sogenannte Bargeld-Verarbeiter.

“Europas Wettbewerbsfähigkeit (European Competitiveness),” ifoSD, 2015

“Wie kann die Wettbewerbsfähigkeit Europas wieder hergestellt werden?,” ifo Schnelldienst 4/2015, February 26, 2015. PDF.

  • “More Europe” to address important cross-border external effects or public goods—but not otherwise.
  • Subsidiarity and fiscal equivalence.
  • European institutions as guardians of the rule of law, economic freedom and consumer rights.

Bleak Prospects for Greece

My colleague Harris Dellas argues in swissinfo.ch that it is too easy to blame a tax dodging elite for the Greek malaise; tax evasion is much more prevalent, not least because a large share of the population is self employed, and institutionally ingrained. He doubts that the current government is better equipped to address the problem than earlier ones. And he fears that Grexit could turn Greece into a failed state.

Also, an open letter (in Greek and German, PDF) by Greek academics (mostly living abroad I presume). They doubt that the current Greek government actually helps to restore the country’s dignity as intended.

Narrow Banking: History and Merits

George Pennacchi discusses narrow banking in an article in the Annual Review of Financial Economics. He concludes as follows:

During the nineteenth century, US banks were more narrow than they are today, and the narrowest (e.g., those under the Louisiana Banking Act of 1842) appeared resistant to panics. Common modern-banking practices, such as maturity transformation and explicit loan commitments, arose only after the creation of the Federal Reserve and the FDIC.

… There appears to be little or no benefits available from traditional banks that could not be obtained in a carefully designed narrow bank financial system. Most importantly, a narrow-banking system could have huge advantages in containing moral hazard and reducing the overall risk and required regulation of the financial system.

In contrast, the reaction by US regulators to the recent financial crisis was to expand the government’s safety net by raising deposit insurance limits and by giving more financial firms access to insured deposits. Expanding, rather than narrowing, the activities that are funded with insured deposits is justified if one believes that regulation can contain moral hazard when firms have many, complex risk-taking opportunities. Unfortunately, this belief appears dubious if one recognizes that regulators face political and information constraints.

In my view, there is a need for research that considers the optimal design of a financial system when a government regulator is limited in its ability to assess risk. … Research needs to better identify those financial services where government support would produce a net social benefit. Services such as maturity transformation and liquidity insurance may not deserve costly government guarantees. Finally, should further research support the general concept of narrow banking, there are still open questions regarding the specific features of these banks. In particular, how narrow should be these banks’ assets and should their liabilities should be deposits or equity shares (at fixed or floating NAVs) are questions that need better answers.