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War on Cash: India Rolling Out Retail Pilot Program for Digital Rupee
War on Cash: India Rolling Out Retail Pilot Program for Digital Rupee
We recently reported that the Federal Reserve plans to launch a 12-week pilot program in partnership with several large commercial banks to test the feasibility of a central bank digital currency (CBDC). The US isn’t alone in experimenting with digital currency. India is working on developing a digital rupee and recently announced the second phase of testing.
After successfully running a pilot program to test its digital currency at the wholesale level, the Reserve Bank of India (RBI) has announced it will test the digital rupee in a retail setting.
According to the RBI, the central bank digital currency “is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.”
Digital currencies are similar to bitcoin and other cryptocurrencies. They exist as virtual banknotes or coins held in a digital wallet on your computer or smartphone. The difference between a government digital currency and bitcoin is the value of the digital currency is backed and controlled by the state, just like traditional fiat currency.
As the RBI put it, “Unlike cryptocurrencies, a CBDC isn’t a commodity or claims on commodities or digital assets. Cryptocurrencies have no issuer. They are not money (certainly not currency) as the word has come to be understood historically.”
According to a report in the Economic Times of India, the National Payments Corporation of India will host the platform for the digital rupee payment system during the testing phase. The Reserve Bank of India wants each commercial bank in the pilot to test retail use of the digital rupee with 10,000 to 50,000 users.
…click on the above link to read the rest…
RBI Bows To Political Pressure With Unexpected Rate Cut
RBI Bows To Political Pressure With Unexpected Rate Cut
Fed Chairman Jerome Powell isn’t the only leader of a major central bank to capitulate to political (and market) pressure so far this year. On Thursday, RBI Gov. Shaktikanta Das during his first meeting at the helm of the bank led a 4-2 vote to cut rates after raising them twice last year.
Shaktikanta Das
Das was widely seen bowing to pressures from Prime Minister Nahrendra Modi, who is desperately trying to boost economic growth ahead of a re-election fight later this year. As one analyst at Mizuho Bank pointed out, the move risks reviving inflationary pressures in India after they had largely eased last year. Das was hastily appointed to lead the central bank in December after his predecessor quit following a very public battle over the RBI’s autonomy.
“If caught wrong-footed by higher oil, twin deficit worries and global risk aversion, the rupee may have to pay the price for monetary complacency, whether perceived or real,” says Vishnu Varathan, head of economics and strategy at Mizuho Bank Perceptions matter for India’s monetary policy, which is trying to target inflation expectations USD/INR may rise above 72.5 over the next 3-4 months; Mizuho’s view was for a prolonged hold in policy
The RBI cut its repurchase rate 25 basis points to 6.25%, a move that only 11 of 43 economists polled by Bloomberg had anticipated. The rest had expected no change.
The board also voted unanimously to switch the central bank’s policy stance to neutral from “calibrated tightening.”
Unsurprisingly, the Indian government cheered the cut, with Finance Minister Piyush Goyal tweeting that it would “give a boost to the economy, lead to affordable credit for small businesses, home buyers etc. and further boost employment opportunities,” said Indian Finance Minister Piyush Goyal in a post on Twitter.
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The Latest Evidence That Global Trade Has Collapsed: India’s Exports/Imports Plunge By 25%
The Latest Evidence That Global Trade Has Collapsed: India’s Exports/Imports Plunge By 25%
Late last month, India surprised 51 out of 52 economists when the RBI cut rates by 50bps.
Although economists have a reputation for being terrible when it comes to making predictions (getting it wrong perpetually is almost a job requirement), it’s difficult to understand how 51 of them failed to see a cut of that magnitude in the cards.
After all, it was just a little over a month earlier when the Indian government’s chief economic advisor Arvind Subramanian told ET Now television that India may need to “respond” to China’s monetary policy stance. He also hinted at further export weakness to come.
Here’s what the REER picture and the export picture looked like going into the RBI meeting:
And here’s what Deutsche Bank had to say in August:
Currency competitiveness is an important factor in influencing exports performance, but global demand is even more important, in our view, to support exports momentum. Global demand remains soft at this stage which continues to be a key hurdle for exports momentum to gain traction.
Hence the outsized rate cut.
So that’s what the picture looked like going into Thursday’s export data and unsurprisingly, the numbers definitively show that global trade is in freefall. Here’s Reuters:
India’s exports of goods shrank by nearly a quarter in September from a year ago, falling for a 10th straight month and threatening Prime Minister Narendra Modi’s goal of boosting economic growth through manufacturing.
India’s economy, Asia’s third largest, is mostly driven by domestic demand, but the country has still felt the effects of China’s slowdown. Exports have dropped and consumer and industrial demand for imports has weakened.
Imports fell 25.42 percent in September from a year earlier to $32.32 billion.Exports stood at $21.84 billion, according to data released by the Ministry of Commerce and Industry on Thursday.
…click on the above link to read the rest of the article…
India “Surprises” 51 Out Of 52 “Experts”, Slashes Rates More Than Expected As Easing Bonanza Continues
India “Surprises” 51 Out Of 52 “Experts”, Slashes Rates More Than Expected As Easing Bonanza Continues
Late last month, we asked how long it would be before the RBI hit back in the wake of China’s yuan deval.
The Indian government’s chief economic advisor Arvind Subramanian had just told ET Now television that India may need to “respond” to China’s monetary policy stance, and also hinted at further export weakness. It wasn’t hard to read between the lines: more shots were about to the be fired in the ongoing global currency wars.
Reinforcing that contention was the following from Deutsche Bank:
India’s export sector continues to be under pressure, with merchandise exports contracting yet again in July by 10.3%yoy. The weakness in India’s exports is striking (this is the eighth consecutive month of decline), not only in terms of past trend, but also from a cross country perspective. Indeed, India’s exports performance has been the weakest in the region thus far in 2015. In the first quarter of the current fiscal year (April-June’15), Indian exports have contracted by 17%yoy, one of the sharpest declines on record. The main reason for such a weak Indian export performance can be attributed to the sharp decline in oil exports (down 51%yoy between April-June’15), which constitute 18% of total exports.
Another factor that could likely explain the weak performance of exports is the probable overvaluation of the rupee. As per RBI’s 36-country trade based real effective exchange rate, rupee remains overvalued at this juncture and this could be impacting exports to some extent, in our view.
Currency competitiveness is an important factor in influencing exports performance, but global demand is even more important, in our view, to support exports momentum. As can be seen from the chart [below], global demand remains soft at this stage which continues to be a key hurdle for exports momentum to gain traction.
…click on the above link to read the rest of the article…
India Central Bank Cuts Interest Rate “Pre-Emptively” For Second Time In 2 Months
India Central Bank Cuts Interest Rate “Pre-Emptively” For Second Time In 2 Months
In a surprise move, the RBI just cut its main interest rates for the second time in two months, taking it from 6.75% to 6.50%, in what the central bank calls a “pre-emptive” policy move, but what is in reality merely a confirmation that so far in 2015 at least 20 central banks have lowered their interest rate.
From the statement:
The RBI notes that the rupee has remained strong relative to peer countries. While an excessively strong rupee is undesirable, it too creates disinflationary impulses…
…softer readings on inflation are expected to come in through the first half of 2015-16 before firming up to below 6 per cent in the second half. The fiscal consolidation programme, while delayed, may compensate in quality, especially if state governments are cooperative. Given low capacity utilisation and still-weak indicators of production and credit off-take, it is appropriate for the Reserve Bank to be pre-emptive in its policy action to utilise available space for monetary accommodation.
Via Bloomberg:
- INDIA’S RBI CUTS RATE TO 7.5%
- INDIA CUTS REVERSE REPURCHASE RATE TO 6.50% FROM 6.75%
- RBI KEEPS CASH RESERVE RATIO OF SCHEDULED BANKS UNCHANGED AT 4%
- INDIAN RUPEE ONE-MONTH FORWARDS EXTEND GAIN AS RBI CUTS RATE
- RAJAN SAYS FURTHER MONETARY ACTION TO DEPEND ON INCOME DATA
- RBI: DISINFLATION EVOLVING AT FASTER RATE THAN ENVISAGED
…and more from Reuters:
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