Figure III in Paul Schmelzing (2019), Eight Centuries of Global Real Interest Rates, R-G, and the ‘Suprasecular’ Decline, 1311–2018. SSRN.
List of third parties (other than PayPal customers) with whom personal information may be shared, according to Paypal, October 2019.
In an NBER working paper, Gino Gancia, Giacomo Ponzetto, and Jaume Ventura propose a theory of declining public support for economic unions: Broad gains from trade in differentiated goods make way for distributive conflict due to specific factors:
… this is partly due to the growth of trade between countries that are increasingly dissimilar. … political support for international unions can grow with their breadth and depth as long as member countries are sufficiently similar. However, differences in economic size and factor endowments can trigger disagreement over the value of unions between and within countries. The model is consistent with some salient features of the process of European integration and statistical evidence from survey data.
A common argument against retail central bank digital currency (CBDC) is that CBDC would undermine financial stability by allowing the general public to swiftly move funds from banks to a government account. But in several countries such swift transfers are possible already today—in the US through Treasury Direct.
(The argument also has conceptual flaws, see the paper On the Equivalence of Public and Private Money with Markus Brunnermeier.)
For over a year the federal funds rate has increased relative to the rate the Fed pays on excess reserves. In mid September 2019, the federal funds rate increased abruptly, triggering the Fed to inject fresh funds. In parallel, the repo market rates spiked dramatically.
On the Cato Institute’s blog, George Selgin argues that structurally elevated demand collided with reduced supply. He mentions explicit and implicit regulation; Treasury General Account (TGA) balances; the NY Fed’s foreign repo pool (Japanese banks); and the administration’s $1 trillion deficit which required primary dealers to underwrite newly-issued government debt.
The bottom line is that regulators have managed to raise the biggest banks liquidity needs enough to compel them to sit on most of the banking system’s seemingly huge stock of excess reserves, and to do so even as repo markets present them with an opportunities to earn five times what those reserves are yielding just by lending them out overnight.
… So there you have it: a host of developments adding to banks’ demand for excess reserves, while others gradually chipped away at the stock of such reserves. Add a spike in primary dealers’ demand for short-term funding, a coinciding round of tax payments that transferred as many reserves to the TGA, and binding intraday liquidity requirements at the banks holding a large share of total system excess reserves, and you have the makings of last month’s perfect repo-market storm.
David Andolfatto and Jane Ihrig concur. On the Federal Reserve Bank of St. Louis’ On the Economy Blog, they already argued in March 2019 that banks feel compelled to hoard reserves rather than lending against treasuries:
Why should banks prefer reserves to higher-yielding Treasuries? One explanation is that Treasuries are not really cash equivalent if funds are needed immediately. In particular, for resolution planning purposes, banks may worry about the market value they would receive in the sale of or agreement to repurchase their securities in an individual stress scenario.
Consistent with this possibility, Federal Reserve Vice Chair for Supervision Randal Quarles noted, “Occasionally we hear that banks feel they are under supervisory pressure to satisfy their [high-quality liquid assets] with reserves rather than Treasury securities.”
To quantify this liquidity consideration, a recent post on the Federal Reserve Bank of New York’s Liberty Street Economics blog suggests that the eight domestic Large Institution Supervision Coordinating Committee’s banks collectively may want to hold $784 billion in precautionary reserves to cover their immediate liquidity needs in times of stress.
Andolfatto and Ihrig argue that the precautionary reserves hoarding by banks could substantially be reduced if the Fed offered a standing repo facility:
The Fed could easily incentivize banks to reduce their demand for reserves by operating a standing overnight repurchase (repo) facility that would permit banks to convert Treasuries to reserves on demand at an administered rate. This administered rate could be set a bit above market rates—perhaps several basis points above the top of the federal funds target range—so that the facility is not used every day …
With this facility in place, banks should feel comfortable holding Treasuries to help accommodate stress scenarios instead of reserves. The demand for reserves would decline substantially as a result. Ample reserves—and therefore the size of the Fed’s balance sheet—could in fact be much closer to their historical levels.
A standing repo facility could effectively impose a ceiling on repo rates. And as Andolfatto and Ihrig argue it would also have other benefits. In a follow up post, Andolfatto and Ihrig emphasize that,
[w]hile U.S. Treasuries are given equal weight with reserves in the calculation of high-quality liquid assets (HQLA) for the LCR, they are evidently not considered equivalent for resolution purposes.
Internal liquidity stress tests apparently assume a significant discount on Treasury securities liquidated in large volumes during times of stress, so that Treasuries are not treated as cash-equivalent. We have heard that banks occasionally feel under supervisory pressure to satisfy their HQLA requirements with reserves rather than Treasuries.
On the NewMonetarism blog, Stephen Williamson offers a longer-term perspective. He appears more skeptical as far as bank liquidity requirements as a possible explanation for the recent interest rate spikes are concerned. In Williamson’s view a floor system that requires even more reserves in the banking system than currently present is ineffective and should be replaced. He writes (my emphasis):
Before the financial crisis, the Fed intervened on the supply side of the overnight credit market by varying the quantity of its lending in the repo market so as to peg the fed funds rate. … a corridor system, as the central bank’s interest rate target was bounded above by the discount rate, and below by the interest rate on reserves, which was zero at the time. But, the Fed could have chosen to run a corridor by intervening on the other side of the market – by varying the quantity of reverse repos, for example. Post-financial crisis, the Fed’s floor system is effectively a mechanism for intervening on the demand side … With a large quantity reserves outstanding, those financial institutions holding reserves accounts have the option of lending to the Fed at the interest rate on reserves, or lending in the market – fed funds or repo market. Financial market arbitrage, in a frictionless world, would then look after the rest. By pegging the interest rate on excess reserves (IOER), the Fed should in principle peg overnight rates.
The problem is that overnight markets – particularly in the United States – are gummed up with various frictions. … Friction in U.S. overnight credit markets … is nothing new. Indeed, the big worry at the Fed, when “liftoff” from the 0-0.25% fed funds rate trading range occurred in December 2015, was that arbitrage would not work to peg overnight rates in a higher range. That’s why the Fed introduced the ON-RRP, or overnight reverse-repo, facility, with the ON-RRP rate set at the bottom of the fed funds rate target range, and IOER at the top of the range. The idea was that the ON-RRP rate would bound the fed funds rate from below.
… if total reserves outstanding are constant and general account balances go up, then reserve balances held in the private sector must go down by the same amount. The Fed permits these large and fluctuating Treasury balances, apparently because they think this won’t matter in a floor system, as it shouldn’t. … Another drain on private sector reserve balances is the foreign repo pool. … if the problem is low reserve balances in the private sector, those balances could be increased by about $300 billion if the Fed eliminated the foreign repo pool.
… The key problem is that the Fed is trying to manage overnight markets by working from the banking sector, through the stock of reserves. Apparently, that just won’t work in the American context, because market frictions are too severe. In particular, these frictions segment banks from the rest of the financial sector in various ways. The appropriate type of daily intervention for the Fed is in the repo market, which is more broadly-based. If $1.5 trillion in reserve balances isn’t enough to make a floor system work, without intervention through either a reverse-repo or repo facility, then that’s a bad floor system. … Make the secured overnight financing rate the policy rate, and run a corridor system. That’s what normal central banks do.
Some background information:
- NY Fed commentary on monetary policy implementation.
- Description (2009) of the primary dealer system, by Barry Ritzholtz.
- NY Fed staff report (2015) on US repo and securities lending markets, by Viktoria Baklanova, Adam Copeland and Rebecca McCaughrin.
In the FT, Cale Tilford, Joe Rennison, Laura Noonan, Colby Smith, and Brendan Greeley “break down what went wrong, what happens next, and whether markets can avoid another cash crunch” (with many figures).
This post was updated on November 21, 11:09 pm; and on November 26 (FT article).
In the FT, Benjamin Parkin reports about the transformation of India’s payments landscape.
Behind the boom is an innovation launched by the Indian government in 2016: the unglamorous sounding Unified Payments Interface, or UPI, which allows immediate mobile payments directly between bank accounts.
Conceived as a public utility, the service is transforming India’s cash-dependent economy into fertile soil for mobile-money apps. … Both the volume and value of transactions had more than doubled in a year.
A paper by Peter Arcidiacono, Josh Kinsler, and Tyler Ransom offers some glimpses.
The lawsuit Students For Fair Admissions v. Harvard University provided an unprecedented look at how an elite school makes admissions decisions. Using publicly released reports, we examine the preferences Harvard gives for recruited athletes, legacies, those on the dean’s interest list, and children of faculty and staff (ALDCs). Among white admits, over 43% are ALDC. Among admits who are African American, Asian American, and Hispanic, the share is less than 16% each. Our model of admissions shows that roughly three quarters of white ALDC admits would have been rejected if they had been treated as white non-ALDCs. Removing preferences for athletes and legacies would significantly alter the racial distribution of admitted students, with the share of white admits falling and all other groups rising or remaining unchanged.
In an NBER working paper, Laurence Ball and Sandeep Mazumder question the puzzles of first, missing disinflation and subsequently, missing inflation in the Euro area. From the abstract:
… we measure core inflation with the weighted median of industry inflation rates, which is less volatile than the common measure of inflation excluding food and energy prices. We find that fluctuations in core inflation since the creation of the euro are well explained by three factors: expected inflation (as measured by surveys of forecasters); the output gap (as measured by the OECD); and the pass-through of movements in headline inflation. Our specification resolves the puzzle of a “missing disinflation” after the Great Recession, and it diminishes the puzzle of a “missing inflation” during the recent economic recovery.
See also the paper by James Stock and Mark Watson.
In an VoxEU column, Vladimir Asriyan, Luca Fornaro, Alberto Martin, and Jaume Ventura lay out their perspective on bubbly money as a complementary store of value and the role of monetary policy in supporting optimal levels of investment.
NSO Group “creates technology that helps government agencies prevent and investigate terrorism and crime to save thousands of lives around the globe,” according to the technology group’s website.
The BIS has published a report on stablecoins. On Alphaville Izabella Kaminska approves but argues that the report does not contain novel points. One aspect discussed in the report concerns the benefit of stablecoins for cross-border payments; it may be limited unless technology is able to address the key friction:
A major obstacle to the interlinking of domestic payment systems and/or the development of shared global payment platforms is differing legal frameworks across jurisdictions and the associated uncertainty about the enforceability of contractual obligations resulting from participation in interlinked or shared payment platforms operating across borders.
See the VoxEU series on the topic.
From the SNB’s press release regarding the newly established BIS Innovation Hub Centre in Switzerland:
The Swiss Centre will initially conduct research on two projects. The first of these will examine the integration of digital central bank money into a distributed ledger technology infrastructure. This new form of digital central bank money would be aimed at facilitating the settlement of tokenised assets between financial institutions. Tokens are digital assets that can be transferred from one party to another. The project will be carried out as part of a collaboration between the SNB and the SIX Group in the form of a proof of concept.
The second project will address the rise in requirements placed on central banks to be able to effectively track and monitor fast-paced electronic markets. These requirements are arising in particular from the greater automation and fragmentation of the financial markets, but also from the increased use of new technologies.
Thomas Jordan and Agustín Carstens signed the Operational Agreement on the BIS Innovation Hub Centre in Switzerland yesterday.
The BIS has issued two reports that assess the implications of unconventional monetary policies.
… a number of unconventional monetary policy tools (UMPTs). After a decade of experience with UMPTs the report takes stock of central banks’ experience and draws some lessons for the future.
The report focuses on four sets of tools: negative interest rate policies, new central bank lending operations, asset purchase programmes, and forward guidance. It offers a summary of central banks’ shared understanding of the efficacy of these tools across countries, as well as the way that they were sequenced and coordinated.
The report concludes that, on balance, UMPTs helped the central banks that used them address the circumstances presented by the crisis and the ensuing economic downturn. It identifies side effects, such as dis-incentives to private sector deleveraging and spillovers to other countries, but does not consider them sufficiently strong to reverse the benefits of UMPTs.
The report also discusses whether, and under what circumstances, these tools could be useful in the future. Central banks report that the tools have earned a place in the monetary policy toolbox, but they also highlight that their use should be accompanied by measures that mitigate their potential side-effects. They also highlight that under the circumstances when the tools can be helpful, they need to be used in decisively but in a context that includes a wider set of policies as to avoid overburdening the central bank.
The report prepared by a Markets Committee study group argues that
… some balance sheet-expanding policies were specifically aimed at improving market functioning, and that they delivered on this front. The potential for adverse side effects arose most clearly at a later stage, when asset purchase programmes were introduced to provide monetary stimulus at the effective lower bound for interest rates. But side effects rarely tightened financial conditions in markets to a point that would have undermined policy effectiveness.
That said, the report finds that some market malfunctioning did arise. In bond markets, adverse effects were mostly associated with asset scarcity, but any such effects were often temporary, in part due to mitigating policies. In money markets, market functioning issues (for example in interbank reserve trading) arose from the abundance of reserves. Yet, other wholesale money markets remained robust and central banks retained sufficient control over short-term rates, typically by introducing new tools. The report acknowledges that prolonged use of large balance sheet policies may have longer-term adverse effects on the market ecosystem, but these are hard to measure at this point.
In the July issue of the American Economic Review, Ruben Durante, Paolo Pinotti, and Andrea Tesei argue that entertainment TV has shaped Italian politics and affected the cognitive skills of viewers. From the abstract:
We study the political impact of commercial television in Italy exploiting the staggered introduction of Berlusconi’s private TV network, Mediaset, in the early 1980s. We find that individuals with early access to Mediaset all-entertainment content were more likely to vote for Berlusconi’s party in 1994, when he first ran for office. The effect persists for five elections and is driven by heavy TV viewers, namely the very young and the elderly. Regarding possible mechanisms, we find that individuals exposed to entertainment TV as children were less cognitively sophisticated and civic-minded as adults, and ultimately more vulnerable to Berlusconi’s populist rhetoric.
On swissinfo.ch, Fabio Canetg explains how the Swiss National Bank prevents banks from hoarding cash rather than holding reserves at the central bank (which pay negative interest). He points to the following sentence in the SNB’s December 2014 press release (my emphasis) and he speculates that banks could, in principle, implement similar schemes to keep depositors from withdrawing cash:
The threshold currently corresponds to 20 times the minimum reserve requirement for the reporting period 20 October 2014 to 19 November 2014 (static component), minus any increase/plus any decrease in the amount of cash held (dynamic component). The change in the amount of cash held is calculated as the difference between the average cash holdings during the most recent reporting period for which the minimum reserve requirement is determined prior to the reference date (cf. section 5 below) and the cash holdings of the corresponding reporting period in a given reference period.
This is blog post #1000.
Huw van Steenis’ summarizes his report as follows (my emphasis):
A new economy is emerging driven by changes in technology, demographics and the environment. The UK is also undergoing several major transitions that finance has to respond to.
What this means for finance
Finance is likely to undergo intense change over the coming decade. The shift to digitally-enabled services and firms is already profound and appears to be accelerating. The shift from banks to market-based finance is likely to grow further. Ultra low rates, new regulations and the need to invest in updating their businesses mean many UK and global banks are struggling to make their cost of capital. Brexit and political and policy changes around the world will also impact the shape of financial services. Risks are likely to shift.
Regulators and the private sector have to collaborate in new ways as technology breaks down barriers. Finance is hugely important to the UK and the right infrastructure can support new finance.
What we ask the Bank of England to do
Shape tomorrow’s payment system
Enable innovation through modern financial infrastructure
Support the data economy through standards and protocols
Champion global standards for markets
Promote the smooth transition to a low-carbon economy
Support adaption to the needs of a changing demographic
Safeguard the financial system from evolving risks
Enhance protection against cyber-risks
Embrace digital regulation
The Federal Reserve Banks will develop a round-the-clock real-time payment and settlement service, FedNow. The objective is to support faster payments in the United States.
From the FAQs (my emphasis):
… there are some faster payment services offered by banks and fintech companies in the United States, their functionality can be limited. In particular, due to the lack of a universal infrastructure to conduct faster payments, most of these services rely on “closed-loop” approaches, meaning that users signed up to one service cannot exchange payments with users signed up to other services. Other services target ubiquity by relying on users’ bank accounts, but they may face challenges reaching enough banks to allow any two users to exchange payments. Moreover, these services typically use traditional retail payment methods to move funds between accounts. These methods result in a build-up of financial obligations between banks …
… fragmented market for end-user faster payment services, with services that may provide faster payment functionality in some circumstances and for some specific uses, like person-to-person payments, but that do not have sufficient reach to advance the U.S. payment system as a whole. The Federal Reserve’s goal in announcing the planned actions is to provide a much broader scope of access to safe and efficient faster payments throughout the country.
… the European Central Bank, Banco de México, and the Reserve Bank of Australia have looked to support the development of faster payments in their jurisdictions by providing services that enable payment-by-payment, real-time settlement of retail payments at any time …
First, the Federal Reserve Banks (the Reserve Banks) will develop the FedNowSM Service, a new interbank 24x7x365 real-time gross settlement (RTGS) service with integrated clearing functionality, to directly support the provision of end-to-end faster payment services by banks (or their agents). Second, the Federal Reserve will explore the expansion of hours for the Fedwire® Funds Service and the National Settlement Service (NSS), up to 24x7x365, subject to further analysis of relevant operational, risk, and policy considerations, to support liquidity management in private-sector RTGS services for faster payments, as well as provide additional benefits to financial markets beyond faster payments.
… Board has concluded that private-sector real-time gross settlement (RTGS) services for faster payments alone cannot be expected to provide an infrastructure for faster payments with reasonable effectiveness, scope, and equity. In particular, private-sector services are likely to face significant challenges in extending equitable access to the more than 10,000 diverse banks across the country.
the service will settle obligations between banks through adjustments to balances in banks’ master accounts at the Reserve Banks; these funds will be eligible to earn interest and count toward banks’ reserve requirements. Consistent with the goal of supporting faster payments, use of the FedNow Service will require participating banks to make the funds associated with individual payments available to their end-user customers immediately after receiving notification of settlement from the service. The service will support values initially limited to $25,000
… the FedNow Service will be available to banks eligible to hold accounts at the Reserve Banks …
By expanding Fedwire Funds Service and NSS hours, the Federal Reserve would provide further support to private-sector RTGS services for faster payments based on a joint account.
Some decision makers at the Fed believed that the Fed lacks authority to regulate banks operating payment systems in order to coerce them to offer access also to smaller banks.
In his Nobel lecture (reprinted in the June issue of the American Economic Review), William Nordhaus concludes that we should focus on four goals:
First, people around the world need to understand and accept … Those who understand the issue must speak up and debate contrarians who spread false and tendentious reasoning. …
Second, nations must establish policies that raise the price of CO2 and other greenhouse-gas emissions. …
Moreover, we need to ensure that actions are global and not just national or local. … The best hope for effective coordination is a climate club, which is a coalition of nations that commit to strong steps to reduce emissions along with mechanisms to penalize countries who do not participate. …
Finally, … [d]eveloping economical low-carbon technologies will lower the cost of achieving our climate goals. Moreover, if other policies fail, low-carbon technologies are the last refuge—short of the salvage therapy of geoengineering—for achieving our climate goals or limiting the damage.
Different aspects of the Libra proposal that various authors have emphasized:
- Jameson Lopp on OneZero: A “database of programmable resources;” Move; “[p]erhaps the network as a whole can switch to proof of stake, but in order for the stablecoin peg/basket to be maintained, some set of entities must keep a bridge open to the traditional financial system. This will be a persistent point of centralized control via the Libra Association”; not a blockchain, the “data structure of the ledger history is a set of signed ledger states”; initially, 1,000 payment transactions per second with a 10-second finality time; technical aspects.
- Laura Noonan and Nicholas Megaw in the FT: Gaining regulatory approval (in each US state, as well as in many countries) is burdensome even if Carney signals “open mind but not open door”; ING declined to be part of consortium; how can merchants be brought onboard?
- James Hamilton on Econbrowser: Currency board; currency competition.
- JP Koning on Moneyness: Competition for national banking systems; new unit of account; global monies (or languages) never worked out.
- Stephen Williamson on New Monetarism: Narrow bank or mutual fund; why “krypto” or “blockchain?” [T]ere’s never been a successful banking system that didn’t have a strong regulatory hand behind it.
- Corinne Zellweger-Gutknecht and Dirk Niepelt in NZZ, Jusletter: Role of resellers; regulation in Switzerland.
- Kari Paul in the Guardian: Astrology.
In 12 Rules for Life, Jordan Peterson argues for the kind of values instilled by a socially conservative parental home: Aim for paradise, but concentrate on today. Meaning is key, not happiness. Assume responsibility. Listen carefully, speak clearly, and tell the truth. And stand straight, even in the face of adversity.
Here they are, Peterson’s 12 rules:
- Stand up straight with your shoulders back
- Treat yourself like you would someone you are responsible for helping
- Make friends with people who want the best for you
- Compare yourself with who you were yesterday, not with who someone else is today
- Do not let your children do anything that makes you dislike them
- Set your house in perfect order before you criticise the world
- Pursue what is meaningful (not what is expedient)
- Tell the truth – or, at least, don’t lie
- Assume that the person you are listening to might know something you don’t
- Be precise in your speech
- Do not bother children when they are skate-boarding
- Pet a cat when you encounter one on the street
Peterson motivates the rules by telling stories and anecdotes from his experience as a clinical psychologist, which he mixes with interpretations of religious (mostly biblical) texts as well as Nietzsche, Freud, Jung, Frankl, or Dostoevsky. Peterson gets politically incorrect when discussing his 11th rule: He strongly rejects postmodernism and nihilism; and he shows little respect for management science: “[T]he science of management is a pseudo-discipline.”
As so often, what the author has to say could be said much more concisely. The book is far too long to precisely communicate the core ideas. What are they? Dean Bokhari suggests the following three key quotes from the book:
“We must each adopt as much responsibility as possible for individual life, society and the world. We must each tell the truth and repair what is in disrepair and break down and recreate what is old and outdated. It is in this manner that we can and must reduce the suffering that poisons the world. It’s asking a lot. It’s asking for everything.”
“Clear rules and proper discipline help the child, and the family, and society establish, maintain, and expand the order that is all that protects us from chaos and the terrors of the underworld. Where everything is uncertain, anxiety provoking, hopeless and depressing. There are no greater gifts that a parent can bestow.”
“The successful among us delay gratification. The successful among us bargain with the future.”
He also offers a “tweetable summary:”
Always tell the truth. Admit and learn from the past, make order of its chaos, and work towards not repeating the same mistakes. Pay close attention.
Other reviewers stress that Peterson wants his rules to help us strike the right balance between order and chaos (see also Philippa Perry’s “How To Stay Sane”). For example, Wyatt Graham condenses Peterson’s thinking as follows:
… life (or Being) involves suffering. … So, “We must have something to set against the suffering that is intrinsic to Being. We must have the meaning inherent in a profound system of value or the horror of existence rapidly becomes paramount” (xxxi).
We need to embrace Being, to not give in to suffering, and to find meaning. We need to live in the border between chaos and order and find our meaning there. …
For Peterson, to find meaning is to take on the responsibility of Being. We find it when we realize “that the soul of the individual eternally hungers for the heroism of genuine Being, and that the willingness to take on that responsibility is identical to the decision to live a meaningful life” (xxxv). He continues, “If we live properly, we will collectively flourish” (xxxv).
- Dare. Show strength in the face of adversity.
- Avoid self contempt. Be self-conscious and have a vision.
- Assume that you chose the easy path, and then take a different one. Improving is much harder than the opposite. “If you have a friend whose friendship you wouldn’t recommend to your sister, or your father, or your son, why would you have such a friend for yourself?”
- Focus on taking one step at a time. And take it.
- Teach your kids to behave properly (not least, to make them socially desirable). Discipline is not revenge.
- Conduct yourself as if Being is more valuable than Non-Being (or risk becoming a serial killer). Set your own house in order before trying to improve the world. Blame yourself—not for life’s tragedies, but for surrendering to them.
- Search for meaning, not for happiness. Sacrifice, i.e., invest.
- Be authentic. Avoid life-lies. Tell the truth to yourself and others. Big Wrongs are based on countless small lies. Only truth is compatible with meaning.
- Lack of precision breeds chaos. Precise speech brings things out of the realm of the unspeakable. Precision separates the unique terrible thing that happened from the others that might have happened—but did not.
- Respect culture, and human nature. Pity today’s boys.
- Our vulnerability is what makes us human. So celebrate the small joys of life.
In The Guardian, Tim Lott summarized Peterson’s worldview as follows:
“Life is tragic. You are tiny and flawed and ignorant and weak and everything else is huge, complex and overwhelming. Once, we had Christianity as a bulwark against that terrifying reality. But God died. Since then the defence has either been ideology – most notably Marxism or fascism – or nihilism. These lead, and have led in the 20th century, to catastrophe.
“‘Happiness’ is a pointless goal. Don’t compare yourself with other people, compare yourself with who you were yesterday. No one gets away with anything, ever, so take responsibility for your own life. You conjure your own world, not only metaphorically but also literally and neurologically. These lessons are what the great stories and myths have been telling us since civilisation began.”
In another discussion in The Guardian, John Crace made it even clearer that he didn’t like the book at all.
In an NBER working paper, James Stock and Mark Watson argue that the correlation between cyclically sensitive inflation (CSI) and bandpass filtered activity measures is high and has not declined over the last decades, contrary to standard measures of the slope of the Phillips curve.
… we construct a new price index designed to maximize the cyclical variation in the price index. This index, which we call Cyclically Sensitive Inflation (CSI), estimates the weights on the component prices to maximize the correlation of the CSI with our bandpass measure of aggregate cyclical variation. … this index places low weights on tradeable goods, such as energy, motor vehicles & parts, and durable household equipment. The index also places low weight on the least well-measured sectors, such as clothing & footwear and final consumption of nonprofit institutions serving households (NPISH). The sectors that receive the greatest weight – housing excluding gas & electric utilities, followed by food & beverages for off-premises consumption, and recreational services – tend to be both locally determined (nontradeable) and relatively well-measured.
In an interview with the NZZ, Gabriel Felbermayr explains where the European Union adds value, and where it doesn’t. The key points:
- Free trade for goods and services as well as capital and labor mobility are partial substitutes. Partial, because factor mobility fosters trade and technology transfer.
- Estimates suggest that free trade and capital mobility generate more than 80% of the welfare gains from European integration.
- Even labor mobility does not require admission into welfare systems. “… der Nutzen uniformer Regeln im Güter-, Dienstleistungs- und Kapitalbereich [ist] sehr hoch … Dies stimmt indes nicht für das Sozial-, Arbeits- und Steuerrecht, auch innerhalb der EU. … Politisch will die EU die Harmonisierung im Arbeits- und Sozialbereich möglichst ausdehnen, um den Wettbewerb zwischen den Staaten zu disziplinieren. Das ist traditionell ein französisches Anliegen.”
- The EU’s budget is mis-allocated: “Wenn man das EU-Budget ansieht, gehen 40% in die Landwirtschaft. Es gibt keinen einzigen guten Grund, dass das auf der zentralen Ebene angesiedelt werden muss. Es widerspricht dem Subsidiaritätsprinzip.”
- What is missing: Capital requirements for government bonds held by banks; a European Monetary Fund; Germany’s long-overdue investments in cross-border rail and energy networks; more EUIs.
- What is not missing: European redistribution mechanisms disguised as “insurance” schemes. “In den EU-Ländern ist die Qualität der Institutionen sehr unterschiedlich. Das erklärt, warum die Wirtschaftsleistung in manchen Ländern hoch, in anderen niedriger ist. Wir können nicht so tun, als hätten Griechenland und Italien immer Pech, die Niederlande und Deutschland immer Glück. Versicherungen sind gut bei zufälligen Schocks. Die sind aber nicht das Problem.”
In the FT, Jean-Pierre Landau argues that central banks should introduce central bank digital currency:
A CBDC would protect the pre-eminence of public money in a digitalised economy. It would maintain effective convertibility of private into public money and provide a defence against digital dollarisation.
For that purpose, a CBDC should be as close as possible to cash. It should be a complement, not a substitute, to bank deposits. It should not carry interest. Whether it should be anonymous, as cash currently is in certain limits, is a fundamental social choice. It must be openly debated as the digitalisation of money forces us to reconsider and rethink the place of privacy in our lives.
In the FT, Chris Giles, Caroline Binham, and Delphine Strauss report about plans of the Bank of England to let fintech companies
bank at Threadneedle Street and thereby offer payments systems on a level playing field with commercial banks.
The editorial board of the FT welcomes the plans; it seems to have in mind not only competition but also “synthetic” CBDC:
By offering fintech companies access to the BoE’s vaults, the governor may inject much-needed competition into the sector. What must follow is proactive regulation …
Commercial banks have traditionally had exclusive access to deposits at the UK’s central bank, offering them a competitive advantage through cheap banking services. … Another potential advantage for consumers is they could be paid the central bank’s often favourable interest rate directly — rather than relying on traditional banks to pass on rate rises.
Mark Carney outlined the plans in his Mansion House speech. Here are some excerpts from the section on digital finance:
… the Faster Payment System (FPS) launched a decade ago has made payments quicker (within two hours) and more cost effective by encouraging direct bank-to-bank transfers.
While mobile app PayM uses FPS to facilitate direct bank-to-bank payments between individuals via text, it requires both the sender and recipient to be signed up to the third party service. But few are. And FPS is not yet used for in-store or online purchases as the infrastructure required at the point of sale does not reliably exist in the UK.
In these regards, the UK is still a long way behind countries such as Sweden, the Netherlands and India …
The revolution of payments may not be driven by the old bank-based systems … Major changes are on the horizon … That’s why the Bank fully supports the Payments Strategy Review the Chancellor has launched this evening.
To support private innovation and to empower competition, the Bank is levelling the playing field between old and new. This means allowing competitors access to the same resources as incumbents while holding the same risks to the same standards.
… we are now making it easier for a broad set of firms to plug in and compete with more traditional providers. In July 2017, we became the first G7 central bank to open up access to our payment services to a new generation of non-bank PSPs. …
Responding to demands from innovators, the RTGS rebuild will also now provide API access to users to read and write payments data, as well as implementing a system whereby each payment will be tagged with information in a standardised format across the world. This global messaging standard will speed up settlement both domestically and across borders.
… Today, the Bank of England is announcing plans to consult on opening access to our balance sheet to new payment providers. Historically, only commercial banks were able to hold interest-bearing deposits, or reserves, at the Bank. …
From the Bank’s perspective, expanding access can improve the transmission of monetary policy and increase competition. It can also support financial stability by allowing settlement in the ultimate risk free asset, and reducing reliance on major banks. Users should benefit from the reduced costs and increased certainty that comes with banking at the central bank. …
This access could empower a host of new innovation. … settlement systems using distributed ledger technology … consortia, such as USC, propose to issue digital tokens that are fully backed by central bank money, allowing instant settlement. This could also plug into ‘tokenised assets’ – conventional securities also represented on blockchain—and smart contracts. This can drive efficiency and resilience in operational processes and reduce counterparty risks in the system, unlocking billions of pounds in capital and liquidity that can be put to more productive uses.
The potential transformation in retail payments is even more fundamental. …
The Bank of England approaches Libra with an open mind but not an open door. Unlike social media for which standards and regulations are being debated well after they have been adopted by billions of users, the terms of engagement for innovations such as Libra must be adopted in advance of any launch.
Carney also outlines plans to support initiatives that aim at giving households and firms control over “their” data:
To make real inroads, SMEs must be able to identify the data relevant to their businesses, incorporate it into their individual credit files, and easily share these files with potential providers of finance through a national SME financing platform.
This would put into practice the recommendations from Professor Jason Furman’s Digital Competition Panel report on how to extract value from data and promote competition. One of the most important recommendations in this regard is to give consumers control of their data. This would allow consumers to move their personal information from one platform to another and avoid lock-in effects, opening the door to new services. To some extent, this is what Open Banking hopes to achieve. Although to make this a success means establishing common off the-shelf API standards and operating platforms onto which developers can build. …
It is not for the Bank of England to build this platform but we can help lay some of groundwork. The messaging standards we are adopting in the new RTGS will also include tagging payments with a unique ID called a Legal Entity Identifier (LEI).
Link to earlier post on the SNB’s policy.