Tuesday, July 19, 2016

Raghuram Rajan — The changing paradigm for financial inclusion

Speech by Dr Raghuram Rajan, Governor of the Reserve Bank of India, at the National Seminar on "Equity, Access, and Inclusion - Transforming Rural India through Financial Inclusion", organised by the National Institute of Rural Development and Panchayat Raj, Hyderabad, 18 July 2016.
BIS
Raghuram Rajan: The changing paradigm for financial inclusion


26 comments:

Ryan Harris said...

He gets it.

The responsibility to act, to remove barriers, to bring people in, is on leadership and insiders, not on the excluded.

The population is not flawed for being unable to get to the inside when they are locked out. Systems are flawed and need to be fixed.

Andrew Anderson said...

We are steadily moving from mandates, subsidies, and reliance on the public sector banks for inclusion to creating enabling frameworks that make it attractive for all financial institutions to target the excluded, even while the interests of the excluded are protected through education, competition and regulation. I am confident that in the foreseeable future, we will bring formal financial services to every Indian who wants them. Financial inclusion will be an important element in ensuring access and equity, necessary building blocks for the sustainable growth of our country. Thank you. R. Rajan [bold added]

No, I don't think he does quite get it. He wants to make rural India safe for private banks so as to increase low cost lending. In principle that is fine but not so fine at all if the private banks in India are privileged as they are in the US, UK and I suppose nearly everywhere else. Then the lower cost loans are the result of stealing from the less so-called credit worthy for the benefit of the banks and the most so-called credit worthy, the rich.

Andrew Anderson said...

Yes, I see India has deposit insurance provided by its central bank.

OH well, it's probably incumbent on the UK or US to reform their fiat and banking model first since they exported that model to the rest of the world, it seems.

Ryan Harris said...

Andrew, there is more to the world than banking liabilities. Bank privilege plays an outsize role in your comments, less so in the real world. Banks are capital constrained. Their capital is at risk, and no one subsidizes their bad investments. Their assets are far more important than their liabilities, the asset side of the balance sheet is where we do not want to subsidize and we want to impose discipline. When a loan sours, they lose. That is what matters. The asset side of the balance sheet is important, not the liability side. You are absolutely obsessed with bank liabilities, get over it. Depositors and availability of loans from the Fed are not a risk to the banks in a modern monetary system like ours with non-covertible and floating fiat currency, the liability side, that you whinge about, nothing interesting to think about there, to even discuss.

Matthew Franko said...

Andrew, be honest, have you ever taken an accounting course in your life?

I have taken 101 and 102 as electives to my main STEM major... and have taken a graduate course in corporate finance....

Have you? Do you know what a liability is that Ryan is talking about?

What side of a balance sheet are liabilities on?

Andrew Anderson said...

Their capital is at risk, and no one subsidizes their bad investments. Their assets are far more important than their liabilities, Ryan Harris

Individual banks can and do go bust because the liabilities they create ("loans create deposits") are VERY REAL among themselves and to other account holders at the central bank such as the monetary sovereign (e.g. US Treasury) and to the central bank itself.

But wrt the public, those liabilities are LARGELY only a SHAM since the public may not have accounts at the central bank and thus may only deal with fiat in unsafe, inconvenient physical form. a.k.a. cash.

So Ryan, how can we have honest accounting between the usury cartel and the public with liabilities that are largely a sham? And if the accounting is dishonest then what hope is there for systemic stability? Much less social justice and stability?

Asset side discipline is simply an attempt to regulate government subsidized thievery to make it more stable. As if a thieving system should or even can be stable?!

Matthew Franko said...

"So Ryan, how can we have honest accounting "

I assert you dont even know what Accounting is...

Matthew Franko said...

What side of a balance sheet are the liabilities on?

Matthew Franko said...

Easy question...

Andrew Anderson said...

It doesn't matter which side as long as Liabilities are on the same side as Equity so Assets = Equity + Liabilities is easily checked by summing both sides.

Now quit embarrassing yourself, Franko.

Ignacio said...

Only the quality of the asset side allows for larger credit expansion.

At core you are a believer of deposits create loans and money multipliers, no better than any moron neolib and neoclassical economist. You don't get it.

Andrew Anderson said...

Only the quality of the asset side allows for larger credit expansion.

Fine, let's assume assets that ALL perform as required, i.e. NO loan losses, i.e. "quality" assets.

But so what? That would only mean the banks would be expert lenders of legally stolen purchasing power, nothing more.

Suppose, for example, a bank was expert at making loans for automation such that it never experienced a loan loss. Would you call that good? When workers were dis-employed with what is, in essence, the PUBLIC'S credit? With what, in essence, is their own legally stolen purchasing power?

Andrew Anderson said...

At core you are a believer of deposits create loans

Nonsense. Loans obviously create deposits but only LARGELY VIRTUAL liabilities wrt the public.

If physical fiat is abolished then those liabilities will be ENTIRELY VIRTUAL wrt the public, i.e. ENTIRELY A SHAM wrt the public.

So Ignacio, do you believe we can have honest accounting with sham liabilities?

Auburn Parks said...

AA-

What exactly is a "sham" about the deposit liabilities of commercial banks?

Andrew Anderson said...

What exactly is a "sham" about the deposit liabilities of commercial banks? AP

Taking a look at a check, I see it says "Pay to the order of _______________ ___________ dollars."

Now dollars exist in only two forms:
1) Account balances at the Federal Reserve
2) Physical Federal Reserve Notes (and US coins), a.k.a. cash.

Now suppose the banks get their wish and abolish cash.

Then how in blue blazes can the public redeem bank liabilities for fiat UNLESS THEY HAVE ACCOUNTS AT THE CENTRAL BANK???!!!

That's what I mean by sham liabilities - liabilities that can't be redeemed.

The frigging banks are a cartel that compete with each other as they loot the general population.

Ignacio said...

They loot by fraud, when they commit fraud (which they many times do). Otherwise they are not 'looting' anything, banks are starving of interest income now.

Is all upo to the governments how much banks earn or do not earn through CB policy. The cost of financial capital right now is so cheap that they earn absolutely nothing and are falling apart as an industry because of it, being mostly zombified.

There is nothing stopping governments for squeezing the banking sector as much as they want, the same way there is nothing stopping them from issuing T-Bills if they really wanted; except the revolving doors and corruption.

There is nothing inherently wrong or dishonest with the system, is influence on the legislative and executive branches which is dishonest about it. Pop it if you will, and you will change absolutely nothing because something similar.

Is a political and social problem, not a financial one. Monetary tricks won't change that (btw the same goes with MMT, you can get all applied MMT you want, if it's applies wrongly nothing is changed, and is even for the worse as Military Monetary Theory has demonstrated over and over).

Ignacio said...

*not issuing T-Bills

(that would collapse the financial system almost immediately due to the lack of good collateral though tbh, and then the governments would bail-out again.)

Andrew Anderson said...

They loot by fraud, when they commit fraud (which they many times do). Otherwise they are not 'looting' anything, banks are starving of interest income now. Ignacio

Interest has nothing to do with creating liabilities that can't be redeemed by the population.

When cash is abolished it will be entirely obvious that the liabilities the banks create are fraudulent since the population won't be able to redeem them at all.

Andrew Anderson said...

Please get just 1/2 a clue, you who defend privileges for the banks.

Here's what some of the smartest people in history have said about banks.

Ryan Harris said...

The IRS accepts bank checks, fed wire transfers, credit cards payments, and ACH payments for taxes at zero discount to hard currency or short term treasury bills which can also be used.

There is no sham or funny business happening.

It's a smart, well designed system banking system that our grandparents left us. While not perfect, we should all be thankful for their wisdom and careful planning, it could be much worse had they left us with a gold standard or other semi convertible system.

Andrew Anderson said...

The IRS accepts bank checks, fed wire transfers, credit cards payments, and ACH payments for taxes at zero discount to hard currency Ryan Harris

The US Treasury accepts its own fiat - Period. That's why it has an account at the central bank so it can deal with its fiat in an inherently safe, convenient form - an account balance.

There is no sham or funny business happening. Ryan Harris

When physical fiat, aka cash, is abolished then bank liabilities toward the public will be entirely fraudulent since the public will not be able to redeem them for fiat. As it is, since cash has not yet been abolished, it can only be said that bank liabilities to the public are largely fraudulent since the public can still get unsafe, inconvenient physical fiat to some degree.

it could be much worse had they left us with a gold standard or other semi convertible system. Ryan Harris

Who the heck is arguing for a gold standard? Not me. I'm arguing for the allowance of accounts for all citizens at the central bank and the abolition of government-provided deposit insurance and other privileges for depository institutions.

In other words, I'm arguing for equal protection under the law. Opposed to that are you?

Matthew Franko said...

"legally stolen": Oxymoron...

Matthew Franko said...

Are you for the abolition of realtors too? Insurance? All forms of commissions?

You're like one of the old Israelites complaining about the brokers at the Temple...

Andrew Anderson said...

"legally stolen": Oxymoron... Franko

Chattel slavery used to be legal in the US. Debt and wage slavery still is via a government privileged usury cartel.

Christians helped to end chattel slavery and they should be on board to end debt and wage slavery too.

Andrew Anderson said...

Are you for the abolition of realtors too? Insurance? Franko

Why should I be?

All forms of commissions? Franko

Let 100% private banks with 100% voluntary depositors create as many deposits/liabilities as they dare and borrow as cheaply and lend as dearly as they can and God will judge.

Meanwhile, the real economy will be protected via an alternative payment system consisting of inherently risk-free individual citizen, their businesses, etc. accounts at the central bank.

What's not to like? Fairness?

Matt Franko said...

"wage slavery": oxymoron