ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Lettered Travelogue of the Scholar Extraordinaire

Forks in the Road: My Days in the RBI and Beyond by C Rangarajan, Gurugram: Penguin Business (Penguin Random House), 2022; pp 304, `699.

Monetary Growth, Financial Structure, and Inflation

It is argued that a key question of the operation of monetary policy is its decomposition into a price effect and an output effect. Specifically, the
association between the easing of global monetary and liquidity conditions on the one hand, and the significant spurt in inflation, on the other, in recent
times is probed to conclude that across the world, there seems to be an association. The issues of monetary stability, price stability and financial stability are also intimately interlinked.

Some Contemporary and Classical Issues of Money and Finance

Post the pandemic, the world seems to be back on a high-inflation path, and many geographies in the advanced world have started witnessing inflation rates that were prevalent in the early 1970s.

A Failed Economy Saved by Geography

Despite experiencing multiple political and economic crises in recent times, Pakistan’s economy has so far avoided a collapse similar to Sri Lanka’s. It is argued that the key to understanding its economic survival has been the effective utilisation of its unique geography, thereby exhibiting features of a rentier state. Its strategic location has enabled Pakistan to secure military and economic support from three major countries, namely the United States, China, and Saudi Arabia. While this enabled a razor’s edge type unstable economic survival, it also prevented the country from undertaking significant political and economic reforms. 

The Union Budget 2023–24 and the Financial Sector

In the context of the financial sector and budget 2023–24, it is argued that while the Emergency Credit Line Guarantee Scheme has played a significant role in the revival of credit growth, in the days to come, the problem of non-performing asset accumulation remains a distinct possibility.

Why Does Extralegal Finance Survive?

Debt, Trust, and Reputation: Extra-legal Finance in Northern India by Sebastian Schwecke, Cambridge: Cambridge University Press, 2022; pp 372, price not stated (hardcover).

The Sri Lankan Crisis

Many have argued that the current Sri Lankan crisis was caused by the economic impact of the COVID-19 pandemic and the Ukraine war, and the country’s overdependence on predatory Chinese lending. Sri Lanka’s problems are more deep-rooted and have their origins in economic policy that focused on providing fi scal sops and a family-run political establishment that enabled the government to ignore sound advice.

Pandemic and the Monetary Policy in the Global North

During the COVID-19 pandemic, expansionary economic policies played an important role in reviving the floundering global economy. In this context, the present paper looks at the effectiveness of monetary policy in the global North in stimulating real economic activity. In an ultra-low interest rate regime, the traditional monetary policy ceases to be effective. Therefore, many developed country central banks adopted a slew of unconventional monetary policy tools to tackle the recession. This paper analyses the unconventional monetary policy tools pursued by the global North with special reference to the United States and argues that the transmission channels of unconventional monetary policy tools to increase effective demand are not always automatic and straightforward. There is strong evidence that while these expansionary measures may have helped during the initial crisis, their effectiveness in reviving sustained economic activity in the medium run is doubtful. On the other hand, there are routes through which increased liquidity created by unconventional monetary policy tools has ended up in the financial sector, thereby leading to an asset price inflation that may not have a net beneficial impact on the real economy.

Money and Finance during the Pandemic and Beyond

With apologies to Gabriel García Márquez’s 1985 novel Love in the Time of Cholera, given the generic themes of most of the papers in this special issue, it could have perhaps been named, “Money, Banking and Finance in the Time of the Pandemic.” But, since the focus of a few of the papers

The Union Budget and the Central Bank Digital Currency

The announcement of the introduction of the central bank digital currency was the highlight of the union budget. However, in the absence of any specific official paper as of now, the treatment in the present article is largely speculative. Specifically, it looks at the possible technological and legal implications of the CBDC in light of other country experiences.

 

A Performance Appraisal of the Inflation Targeting Regime

The recently published Report on Currency and Finance, 2020–21 of the Reserve Bank of India reviewed the performance of the flexible inflation targeting regime in India. In the light of stylised facts, cross-country experience, and detailed econometric results, the report seemed to suggest that despite several shocks (like demonetisation or introduction of the goods and services tax), a combination of good policy and luck have worked in favour of the success of the FIT regime in India. Going forward, while advocating some nuanced, subtle changes in the operation and administration of the FIT regime, the report called for its continuation as a strategy of monetary policy in India.

 

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