Tag Archives: Notes

On his blog, JP Koning discusses the versatility of cheques: A cheque instructs a bank to transfer deposits. It is a derivative on bank deposits. A post dated cheque serves as debt instrument, e.g., vis-a-vis pay day lenders. An uncashed cheque may serve as money if marked “to bearer” or endorsed by the recipient. Laws grant cheques currency status. A cheque may be used for payments even if other payment mechanisms break down. During the Irish banking strike of 1970, “for six months...

On his blog (here and here), JP Koning discusses currency status: … laws that … grant … currency status. … Say that person A is carrying some sort of financial instrument in their pocket and it is stolen. The thief uses it to buy something from person B, who accepts it without knowing it to be stolen property. If the financial instrument has not been granted currency status by the law, then person B will be liable to give it back to person A. If, however, the instrument is currency, then...

On VoxEU, Mary Amiti, Emmanuel Farhi, Gita Gopinath, and Oleg Itskhoki discuss a border adjustment tax and its consequences. … a border adjustment tax … would make export sales deductible from the corporate tax base, while expenditure on imported goods would not be deductible … Therefore, if the border adjustment extends to all imports and exports, it is akin to a combination of a uniform import tariff and an export subsidy on all international trade … … it would limit the incentives for...

Dave Birch blogs about the concept of legal tender: a means to discharge debt. … you cannot force a retailer to accept legal tender or indeed any other form of tender. If, however, you buy something from them and there is no contractual barrier to the use of any form of tender, and you offer legal tender in payment, and they refuse it, then they cannot enforce the debt in court. That’s what legal tender means: it’s about discharging debts. If you incur a debt you can discharge it with...

The Economist reports about research on quantum mechanics and the theory of relativity which suggests that causality is a dubious concept. … it is no longer only location in space that becomes uncertain, but also location in time. Often, therefore, it would no longer be possible to say which of two events came first.

The Economist reports about plans for Monte dei Paschi’s future: … retail investors in the bank’s junior bonds, many of them ordinary customers. European state-aid rules say that they should lose their money along with shareholders. Technically, they will. In fact, to preserve their savings and avoid a political outcry, they will be deemed to have been “mis-sold” the bonds: they will receive shares which will in turn be swapped for new, safer bonds. Italy has to come up with a...

In a (December 2015) Bank of England Staff Working Paper, Lukasz Rachel and Thomas Smith dissect the global decline in long-term real interest rates over the last thirty years. A summary of their executive summary: Market measures of long-term risk-free real interest rates have declined by around 450bps. Absent signs of overheating this suggests that the global neutral rate fell. Expected trend growth as well as other factors affecting desired savings and investment determine the neutral...

In an ECB occasional paper, Ulrich Bindseil, Marco Corsi, Benjamin Sahel, and Ad Visser review the European Central Banks’s collateral framework. From the executive summary, on misconceptions: … differences e.g. with interbank repo markets: first, central banks are not subject to liquidity risk in the way “normal” market participants are, and can therefore accept less liquid collateral. Second, as the central bank has a zero default probability in its domestic market operations,...

On VoxEU, Stefan Gerlach reviews the case for tilting Phillips curves in Switzerland. Previous research had suggested that the Swiss Phillips curve had steepened in the second half of the 20th century. Gerlach estimates a Phillips curve model that includes lagged inflation, an output gap measure, and a measure of import price inflation. His model suggests several structural breaks: The first structural break occurs in 1936-37. The estimated Phillips curves indicate that inflation became...

On the Brookings blog, Aaron Klein discusses the Orderly Liquidation Authority that was introduced with the Dodd-Frank Act. Dodd-Frank extended the FDIC’s authority to resolve failed institutions beyond commercial banks to include the entire bank holding company and all firms designated as Systemically Important Financial Institutions (SIFIs). Thus, if a large, complex financial institution were to fail, the FDIC would have authority to resolve the entire institution, both the commercial...