Careful what you wish for central bankers and fiscal policy makers. Though we don’t see signs of “rollover risk” in any of the G5 or G20, it’s all about confidence and you know what Joe said about confidence:
Confidence is a very fragile thing. – Joe Montana
.The World Economic Forum reports this about Zimbabwe’s ghost of hyperinflation past,
Zimbabwe was once so gripped by hyperinflation that the central bank could no longer afford paper on which to print practically worthless trillion-dollar notes.
The government reported in July 2008 that Zimbabwe was experiencing inflation of 231 million percent (231,000,000%). However, the Libertarian think tank, the Cato Institute, believes that the real inflation rate was 89.7 sextillion percent or 89,700,000,000,000,000,000,000%.
It is interesting to note that the country is now grappling with the opposite problem.
Like Britain, Japan, the US and other nations dealing with the consequences of weak demand and cheap oil, Zimbabwe is threatened more by the prospect of falling prices. But that doesn’t mean its people are ready to trust that hyperinflation won’t happen again.
French Nobel laureate Jean Tirole on Thursday said demonetisation “can’t catch much of corrupt money” although it will make corruption more difficult in the future.
“You cannot get the corrupt money right away because the money has already been invested in real estate, gold and other things,” the economist said at a lecture organised by Presidency University.
“It will make future corruption more difficult,” he said, when asked on demonetisation.
Cashless economy, according to him “is a good thing” but “it has to be ensured that poor people who are most dependent on cash do not suffer”.
Expanding on demonetisation, Tirole referred to similar attempts in Scandinavian countries but cautioned that situation in India is different.
“People want to get rid of cash for several reason and you see that in Scandinavia for example, Denmark and Sweden are trying to get rid of cash because it is more convenient. In India, the reason is to get rid of corruption,” he said.
Former Reserve Bank governor D Subbarao on Thursday termed demonetisation as “creative destruction and the most disruptive policy innovation since 1991 reforms” that has helped destroy black money.
“On November 8, the Prime Minister (Narendra Modi) and the Reserve Bank have demonetised 86 per cent of currency in circulation overnight, which is what is arguably the most disruptive policy innovation in India since the 1991 reforms,” he said.
“Demonetisation, in that sense, is creative destruction. But it is a very special type of creative destruction. Because what it has destroyed is a destructive creation — black money. So, you can understand that demonetisation is creative destruction of a destructive creation,” Subbarao said.
He was addressing an international conference organised by the Institute for Development and Research in Banking Technologies (IDRBT) in Hyderabad. He further said demonetisation is “arguably” leading to a flurry of innovations in Indian financial sector by way of digitisation of payments.
Banks had been expected to be among the big beneficiaries of demonetisation, thanks to a flood of deposits and the resultant cut in the cost of funds. But at least in the short term, banks, too, will feel the pain no less.
The impact of the demonetisation shock on corporate earnings will be felt across sectors, and will be visible as early as next week when December quarter results start trickling in.
Much of the narrative about demonetisation’s impact has focused on the consumer sector, because of its cash-reliant supply chains, and real estate. However, banks suffered, too, Bloomberg data shows.
Consensus earnings per share (EPS) estimates for fiscal 2017 for the BSE Bankex index have dropped 6.25% since 8 November, when the government invalidated Rs500 and Rs1,000 currency notes. That is lower than the earnings estimate cut for BSE Realty (down 39.5%) and industrials (8%) and about the same as automobiles (6.34%).
Banks have not only been hit by slowing credit demand, they have also had to forgo fee income on ATM transactions and card payments.
“Banks have lost on new business coming in, with all focus being on exchanging notes, and facilitating the new currency,” said Ajay Bodke, chief executive and chief portfolio manager, portfolio management services, at broking firm Prabhudas Lilladher Pvt. Ltd.
In a decision that will bring big cheer to the common man, the RBI (Reserve Bank Of India) has hiked the daily ATM withdrawal limit to Rs 4,500 per card. This would come as a huge relief to people who stand in queues for a long time and still manage to get only Rs 2,500.
In its latest notification, the RBI said, “The daily limit of withdrawal from ATMs has been increased (within the overall weekly limits specified) with effect from January 01, 2017, from the existing Rs 2500/- to Rs 4500/- per day per card. There is no change in weekly withdrawal limits.Such disbursals should predominantly be in the denomination of Rs 500.”
The current withdrawal limit per bank account per week has not been revised, a fact that is likely to disappoint people.
The Narendra Modi government’s move to demonetise old Rs 500 and Rs 1000 notes has largely been supported by the common man, though most agree that the implementation could have been better planned and executed. Long queues at banks and ATMs were a common sight in the first few days since the historic decision was announced by PM Modi on November 8. The situation has admittedly improved since then, but with increase in the daily limits, the government and banking system must work to ensure that ATMs have enough cash. But even as the central bank has eased the ATM withdrawal limit, the government is leaving no stone unturned to promote cashless transactions.
With Chinese liquidity markets turmoiling, bonds crashing, and gold premiums soaring, it appears growing concerns over capital controls tightening has sent Chinese fleeing into Bitcoin as a way to escape the mainland restrictions. Bitcoin is up over $30 today to its hghest since Dec 2013…
We first warned of this ‘outlet’ for Chinese capital in September 2015 when Bitcoin was trading around $200… its just topped $830…
The Bank of Japan revised its economic outlook for the first time in 19 months during the two-day policy meeting that ended Tuesday. But that is apparently the only step the central bank is taking at this time.
“The headwinds seen in the first half of this year have ceased,” BOJ Gov. Haruhiko Kuroda told reporters following the meeting. Markets were riled by heightened concerns directed at emerging economies at the beginning of 2016, only to be shocked in June by Britain’s referendum to exit the European Union. The BOJ was forced to loosen its policy in July, raising its target for exchange-traded fund purchases.
During the second half of 2016, the economic landscape has slowly brightened, beginning with U.S. readings. The Japanese economy has followed suit with increased exports and production. Consumption also recovered from a slump caused by a soft stock market and inclement weather at the beginning of the year.
“Japan’s economy has continued its moderate recovery trend,” the BOJ said in a statement published after the meeting. The central bank had previously qualified that view by highlighting sluggish exports and production.
The premium that mainland Chinese investors are willing to pay for physical gold has surged to over $40 as the Chinese government seeks to curb illegal capital outflows. Following slowing in Tier 1 home price growth, and a collapse in the China bond market, it appears gold panic-buying is accelerating…
This premium is higher than during the Lehman crisis and as bad as the peak of the Chinese banking system liquidity crisis in 2013 as onshore investors appear to prefer the precious metal to hedge against ongoing Yuan devaluation…
But it’s not just precious metals that are bid as alternatives to their paper money, Bitcoin is bid to its highest since Jan 2014…
Two months ago, when looking at an alternative measure of Chinese capital outflows using SAFE data, Goldman found that contrary to official PBOC reserve data, “China’s Capital Outflows Are Soaring Again”, having hit $78 billion in September.
Over the weekend, and following the latest PBOC data which revealed an outflow of $56 billion in November (which was only $34 billion when FX adjusted), Goldman repeated its FX flow calculation using SAFE data, and found the China continues to mask the full extent of its outflows, which in November spiked to $69 billion, and that “since June, this data has continued to suggest significantly larger FX sales by the PBOC than is implied by FX reserve data”, once again suggesting that China is eager to mask the true extent of reserve outflows, perhaps in an attempt to not precipitate the feedback loop of even further panicked selling of Yuan and even more outflows, and thus, even more reserve depletion.
According to Goldman’s MK Tang, money has been leaving in yuan payments for 14 consecutive months, while the central bank’s yuan positions have slumped the most since January. The situation could get worse, said Banny Lam, head of research at CEB International Investment Ltd, cited by Bloomberg.