Day: August 29, 2019

EC101: Links for 29th August, 2019

  1. A simple explainer from the ToI about what RBI’s surplus funds are.
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  2. “Central bank balance sheets can be difficult to grasp and are the subject of much debate. This note makes the case that gross capital is large on RBI’s balance sheet (and further additions to the capital by way of retained earnings do not look necessary) but given the large government debt on the RBI’s books, it is difficult to justify any one-time standalone transfer to the government now.”
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    Ananth Narayan, writing about a year ago (close enough) on the advisability of handing over the funds to the GoI. A nuanced argument, and worth reading.
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  3. “So what you do is:      On the liability side, you reduce the provisions by a certain amount
    On the asset side, you cancel out some government bonds. What the government owes the RBI (as interest and principal) goes away into thin air.

    This gives the government the ability to issue more bonds (since it just saved a truckload on interest costs) and thus use that additional money to do different things.”
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    Deepak Shenoy on the same topic, again from a while back.
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  4. “The balance in the CF is about ₹2.32-lakh crore, which is around 6.4 per cent of the RBI’s total assets.This is reportedly much higher than the 2 per cent average that other BRICS nations (Brazil, Russia, China and South Africa) hold, according to a Bank of America Merrill Lynch report.”
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    The Hindu Business Line on how high the contingency funds are as a percentage of the balance sheet, and how high that number is in comparison to other economies.
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  5. “But there’s a danger, exemplified by Venezuela in the 1980s and 1990s. The central bank, pushed into insolvency by its support of the Latin American government’s industrial policy, leaned too heavily on the power of cheap money-printing to earn profits and repair its balance sheet, and lost control of inflation. Thinning out the Indian central bank’s capital cushion could introduce a similar vulnerability”
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    Andy Mukherjee plays devil’s advocate.