Brief of newspaper articles for the day bearing
relevance to Civil Services preparation
What is 9 PM brief?
- GS PAPER 1
- Sri Lanka to get a glimpse of Pakistan’s Buddhist legacy {Art and Culture}
- GS PAPER 2
- India may supply two warships to Philippines {Foreign Policy}
- ITF wants app-based taxis to trade data for light regulation {Governance}
- Oil-for-drugs deal likely with crisis-hit Venezuela {Foreign Policy}
- North by Northeast {Foreign Policy}
- Rebooting ties with Iran {Foreign Policy}
- A work in progress {Social Issue}
- Maldives cuts ties with Iran {Foreign Policy}
- Why we must have the right to choose death {Bills and Laws}
- GS PAPER 3
- Discipline yourself {Economy}
- Bank on the brink {Economy}
- The way back for monetary policy { Economy}
GS PAPER 1
[1] Sri Lanka to get a glimpse of Pakistan’s Buddhist legacy
News:
- Two sacred bone relics, believed to be associated with Buddha and being kept at a museum in Taxila, Pakistan, will be among four artefacts to be displayed in Sri Lanka for a month, starting May 21.
- Apart from the sacred relics, a stone reliquary in “stupa” shape and a golden casket are being sent from Pakistan to Sri Lanka.
- On Thursday, the artefacts will be given to the Sri Lankan government by officials from Pakistan.
- When Pakistan’s Prime Minister Nawaz Sharif visited Colombo in January, a formal request was made to him to send the relics for display, according to a release issued by the Pakistan’s High Commission here.
- Though opinions differ on the exact period of Buddha’s lifetime, it is widely accepted that he lived between the 6 Century BCE and 4 Century BCE.
- It was in the north-western region of Pakistan that the Gandhara civilisation flourished from the 6 century BCE to 5 century CE.
Gandhara:
- According to the High Commission, the actual territory of Gandhara is a triangular piece of land about 100 km (east to west) and 70 km (north to south), on the west of the Indus river, surrounded by mountains in the present-day Pakistan.
- The Gandhara School of Art is regarded as the early creator of Buddha in human form carved in stone, stucco, terracotta and bronze. Its works were mostly enshrined in monasteries and “stupas” throughout the Gandhara region.
GS PAPER 2
[1] India may supply two warships to Philippines
What happened?
- In a boost to India’s defence exports in a region of strategic importance, Kolkata-based public sector yard Garden Reach Ship Builders (GRSE) has emerged as the lowest bidder to supply two warships to the Philippines Navy.
‘Act East’ policy
- India has been actively beefing up relations in the region as part of its ‘Act East’ policy under which maritime security and defence cooperation are assuming a central role.
- On the other hand India has been attempting to build a domestic defence manufacturing base and increase its defence exports.
- Philippines which has territorial disputes with China over the South China Sea has announced plans to beef up its Navy.
- India exported its first warship to Mauritius in December 2014, an offshore patrol vessel, CGS Barracuda, built by GRSE at a cost of Rs.350 crore.
- Since then GRSE has been aggressively scouting for opportunities in the neighbourhood.
- It is also set to supply four patrol vessels to Vietnam under the $100 million line of credit extended by India in 2014.
[2] ITF wants app-based taxis to trade data for light regulation
News
- International Transport Forum(ITF), a think tank affiliated to the Organisation for Economic Cooperation and Development (OECD) with 57 member countries, including India, wants app-based taxis to trade data for light regulation.
Key points:
- The new generation of app-based taxi operators can persuade governments to treat them with light regulation, if they come forward to share their operational data with regulators who can then review the impact of their service.
- In order to help reduce the burden of regulation, the operators should be willing to share their data — by providing access to regulators, allowing reception of data or facilitating verified third-party data reporting.
[3] Oil-for-drugs deal likely with crisis-hit Venezuela
- Some time back India came up with new system of payment to venezuela.
- Now India is trying to make the trade smooth by using the system of barter.
News:
- India has proposed an oil-for-drugs barter plan with cash-strapped Venezuela to recoup millions of dollars in payments owed to some of India’s largest pharmaceutical companies.
Reason:
- Venezuela’s socialist economy amid a fall in oil prices has triggered triple-digit inflation and a full-blown political and financial crisis.
- Unable to pay its bills, the country is facing severe shortages of even basic supplies such as food, water and medicines.
Current situation:
- The situation in Venezuela is very precarious.
- The government knows it needs to do something about the medicine shortage.
- That’s why it is willing to discuss such a deal.
- The officials said Venezuela had been receptive to the plan “in principle,” but not made any concrete commitments yet.
- But it will take time
Big blow
- Like pharmaceutical companies globally — which used to enjoy a preferential exchange rate in Venezuela — Indian producers have been left badly stung by the collapse of the bolivar currency.
- Officials, on condition of anonymity, said the Trade Ministry had proposed a payment mechanism that would allow Venezuela to repay some of the amount owed with oil.
- The proposal would use the State Bank of India to mediate the transfer. The plan is now awaiting approval on the Indian side from the Finance Ministry and the RBI.
Other Examples of barter:
- India, one of the world’s biggest oil importers along with the U.S. and China, had similarly elaborate barter deals with Iran, swapping rice and wheat for oil.
Key oil supplier
- India’s exports to Venezuela between April 2015 and February 2016 almost halved year-on-year to $125.5 million, compared with a year earlier.
- Most of that were pharmaceutical products.
- The amount owed to Indian companies is modest on a global scale.
- But Venezuela is India’s largest trade partner in Latin America and one of its key suppliers of oil.
- A deal could also revive sales, albeit at a reduced level, at a time when Venezuela is desperately short of medical supplies, lacking as much as 80 per cent of what it needs to treat its population, according to a Venezuelan industry body.
Vicious cycle:
- Many other providers in the oil, food and trade sector are pressuring Venezuela to pay its debts, at a time when the cash-strapped government is facing growing social unrest.
- The OPEC country’s oil production is also expected to fall this year due to a lack of resources, a power crunch and maintenance problems, likely leaving it with less crude for export.
[4] North by Northeast
Issue
- India-Nepal Policy. The article has been written by Kanak Mani Dixit, a writer and journalist based in Kathmandu.He has given suggestions that instead of competing, India should engage China vis-a-vis Nepal.
Himalayan Paranoia
- It is time for India to shed the Himalayan paranoia, which it has experienced ever since the the 1962 debacle at the hands of China.
- It should focus towards an easier relationship with the sovereign neighbours, helping their evolution into stable democracies.
- It would also contribute to making India’s own Himalayan hinterland, from the Northeast to Kashmir, more part of the national mainstream.
A case for out Out-of-the-box statecraft
- India is challenged today in responding to a China activism in Pakistan, Bangladesh, Myanmar, Sri Lanka and now Nepal.
- The Chinese challenge is real, but the ground has shifted with advances in the transport, infrastructure and geopolitics of High Asia, enough to demand a policy departure.
- New Delhi will have to calibrate its position between competing with, engaging, and strategically challenging Beijing.
- Connectivity is what India’s foreign policy establishment has been championing for the South Asian economies, and there is no reason why it should not be extended north by northeast, to Tibet and all the way to the Chinese mainland.
- In doing so, it should consider the advantages of the planned trans-Himalayan infrastructural connections, which will ultimately help India’s economy link to the Chinese mainland.
- Out-of-the-box statecraft would bring dividends in peace of mind, savings and economic growth.
Game Changer
- There is no need to fear that China will replace India’s pre-eminent role in Nepal’s economy, however.
- For one thing, the Chinese mainland and ports are 3,000 km away, as compared to 1,000 km to Kolkata.
- Meanwhile, the open Nepal-India border is a prize of shared history to be nurtured by both countries.
- In sociopolitical terms, Kathmandu’s civil society enjoys a comfort zone with India that the taciturn Chinese state cannot match.
- The arrival of Qingzang Railway from the Chinese mainland to the Tibetan plateau in 2006 has been the game changer, and the line has already been extended to Shigatse town and is ploughing westward and closer to Nepal’s border points.
- The railway makes the transfer of goods from the mainland economically feasible in a way that had never before been contemplated.
- It is set to create new commercial dynamics, especially as the lacking southward highways are constructed through Nepal’s mid-hills.
- Nepal and China have agreed to complete the Kyerung Highway starting northwest of Kathmandu, which would allow descent from the Tibetan plateau to the Gangetic plain in less than a day.
- There is also agreement to build the Kimathanka Highway down the Kosi river valley in eastern Nepal, which would bring the Shigatse/Lhasa railheads close to Bangladeshi and Indian ports.
What India should do?
- India would do well to add economics and commerce to its strategic vision of the Himalayan region.
- If New Delhi loosens up on Nepal with this understanding, it may be surprised to find that it retains Kathmandu as a steadfast partner while gaining market access to Tibet and the east Asia mainland through Nepal’s all-weather routes.
- The Himalayan region today represents a realm of opportunity more than competition, which requires New Delhi to be able to compartmentalise the commercial and the geostrategic.
[5] Rebooting ties with Iran
Issue
- India-Iran Foreign Policy.
- For background, refer earlier article Chabahar tops agenda of Modi’s visit to Iran.
Extended neighbour
- India is keen on taking ties with this “extended neighbour” to a higher level.
- The removal of sanctions on Iran following the nuclear deal has ended its isolation, and enabled its return to the economic and diplomatic mainstream.
- The visit is expected to bridge the trust deficit in bilateral cooperation and boost energy and trade ties while expediting India’s connectivity plans.
Harsh Times
- Bilateral ties took a beating during the sanctions years.
- India had voted against Iran at the International Atomic Energy Agency over its clandestine nuclear programme and, under pressure from the U.S., slashed oil imports from the country by up to 40 per cent during the period.
- New Delhi had also backed off from a pipeline project that aimed to bring natural gas from Iran to India through Pakistan.
- But with sanctions removed and foreign countries and companies rushing back to Tehran to seize business and economic deals, it is important for India to reboot relations.
Importance of Iran for India
- Till sanctions were imposed on Iran, it was India’s second largest source of crude oil after Saudi Arabia.
- Once the Chabahar port in Iran is developed, it will offer India alternative access to landlocked Afghanistan, bypassing Pakistan.
- Both Iran and India share the goal of a stable government in Kabul free of the Taliban’s influence. Globally, New Delhi and Tehran are on the same page in their opposition towards groups like al-Qaeda and the Islamic State.
- The Iran visit is an opportunity to restore equilibrium in India’s foreign policy, which, of late, was seen to be skewed towards Israel and Saudi Arabia.
The balancing Act
- The government appears to be trying to reach out to the three poles of the region.
- While it will pursue good ties with the Sunni Gulf for energy supplies, Iran would act as a gateway to Central Asia besides enhancing India’s energy security.
- Israel remains one of India’s top defence and technology suppliers.
- The success of this policy depends on New Delhi’s capacity to do the balancing act.
[6] A work in progress
GDP:
- GDP since 1930’s has been used to measure the economic performance of a nation, and has been shaping the debate on the performance of countries for the past 80 years or so.
- Today, almost every country maintains GDP statistics.
- GDP? Click here
What are the relative merits and demerits of GDP and has it outgrown its utility?
- GDP growth over time enables central banks and policymakers to evaluate whether the economy is in recession or inflation. In that sense it is still required.
- GDP has held significance as a universal metric over the years. However, with rapid globalization and technology-oriented integration among countries, this metric has become outdated and does not accurately take into consideration other aspects like the wellbeing of the residents of a country.
- The most significant weakness of GDP is its exclusion of voluntary market transactions. GDP as a measure of economic growth fails to account for productive non-market activities, like a mother taking care of her child, a homemaker doing household chores, a homeowner doing maintenance of his house, leisure (paid vacation, holidays, leave time), improvement in product quality, etc.
- GDP also ignores important factors like environment, happiness, community, fairness and justice. To be fair, it was not intended to measure these. But these are important aspects of development.
- Thus, there is a need for alternative measures which can take into consideration other key factors like hunger and malnutrition, safety parameters, literacy rate and tolerance.
It is where some of the recent approaches have tried to go beyond GDP and incorporate most of these factors into the measurement of the well-being within the society.
- Some of these include GINI coefficient, HDI (Human Development Index), and GNH (Gross National Happiness).
- GINI coefficient which was introduced in 1912 by Corrado Gini and adopted by World Bank, and measures the income inequality among a country’s citizens — but it fails to measure social benefits or interventions that reduce the gap or inequality between rich and poor.
- GNH, which was introduced in the 1970s by the king of Bhutan similarly measures the happiness levels of the citizens in a country while it ignores other important elements like gender equality, quality education and good infrastructure.
- HDI, devised and launched in 1990 by Pakistani economist Mahbub ul Haq, is computed and published by the United Nations Development Programme and overcomes most of the shortcomings of the Gini coefficient and GNH.
- After this, Millennium Development Goals and Sustainable Development Goals were also built along various dimensions based on the work done in understanding human development.
- However, HDI, as a measure, falls short in its capture of the unequal distribution of wealth within the country and the level of infrastructural development.
- Many prospects of a healthy society, such as environmental sustainability and personal rights, are not included in HDI.
- It is not successful in tracking the apparent progress of countries, nor is it sufficiently factored into primary level parameters to indicate many important areas of policy.
- These are some of the limitations of the approaches in finding a composite measure of well-being to date.
SPI as complementary index
- The next stage in the measurement of well-being went into creating what is termed as the Social Progress Index (SPI).
- It goes beyond the traditional measure of GDP and has most parameters that are required to fulfil SDGs.
- SPI is based on three fundamental pillars:
- Basic needs for survival;
- Access to the building blocks to improve living conditions
- Access to opportunity to pursue goals and ambitions.
What is the difference between GDP and SPI?
- SPI focuses on outcomes rather than inputs that are used in GDP.
- For example, the quality of life and longevity are measured instead of spending on health care, and people’s experience of discrimination is looked at instead of focussing on whether there is a law against discrimination.
- SPI also reframes the fundamentals about development by taking into consideration not just GDP but also inclusive, sustainable growth that will lead to a significant improvement in people’s lives.
- SPI can best be described as a complementary index to GDP and can be used along with GDP to achieve social progress.
Measurement and present scores on the index:
- If the world is considered as one country, it would score 61.00 on the SPI on a population-weighted basis.
- India ranks 101 with a social progress score of 53.06 among 133 countries, according to SPI 2015.
- One significant find is that all countries doing well in GDP/capita are not always the ones at the top of SPI. For example, New Zealand has GDP per capita almost half that of the top performing nations, according to GDP per capita figures, but performs better than most nations on SPI.
- The U.S., which has significantly higher GDP than New Zealand, ranks lower than New Zealand on SPI.
- Another example is Costa Rica which may be called a social progress superpower because it is on a par with some west European countries in spite of a much lower GDP per capita.
- West Asian economies like Kuwait, the United Arab Emirates and Saudi Arabia perform contrary to this pattern as they have high GDP per capita, but secure significantly inferior positions in SPI.
Conclusion:
- SPI can bring substantial betterment in the policy discourse on development.
- With the move to getting it introduced at a sub-national level, the index is expected to help development practitioners and other stakeholders in analysing well-being in a better manner.
- Ideally, the development project should start with a bottom-up approach, from a grass-root level to city, then from district to State and, finally, to the national level. SPI, when introduced in India — a beta index will be launched in September — can this way lead to a better understanding of well-being and prosperity within the country.
[7] Maldives cuts ties with Iran
What happened?
- The Maldives has terminated its four-decade-old diplomatic ties with Iran.
Reason given by Maldives
- Maldives said that Iran’s policies are detrimental to peace and security in the region (West Asia), which, in many ways, is also linked to stability, peace and security of the Maldives.
[8] Why we must have the right to choose death
Issue:
- Legal provisions for euthanasia
- The proposed Medical Treatment of Terminally-Ill Patients (Protection of Patients and Medical Practitioners) Bill regarding passive euthanasia—its draft is posted on the health ministry website for public feedback—is one such instance. It is a step in the right direction, even if it has shortfalls to be addressed.
The question of whether a terminally ill person—or in the case of someone rendered medically incapable, the relatives and medical professionals—should be allowed to choose when to forgo treatment or life-prolonging medical support speaks to fundamental issues of a human life’s intrinsic value and the authority to end it.
- Less than a dozen countries in the world currently have legal provisions for euthanasia.
- Supreme Court’s 2011 verdict in the Aruna Shanbaug case: Allowed for passive euthanasia (as opposed to active euthanasia, which would entail the doctor administering drugs to end the patient’s life).
- The current bill seeks to codify and regulate that framework.
There are two perspectives on the issue.
- Legal perspective: The state has an understandable interest in maintaining its monopoly on the right to—in crude terms—end a citizen’s life. This is foundational to its legitimacy and authority.
- Euthanasia is difficult to regulate and laws allowing it can be vulnerable to malicious intent. At the very least, moral pressure could be exerted on the terminally ill to choose this option.
Individual’s right:
- These concerns do not outweigh the individual’s inalienable right to choose how to conduct their private life when that conduct does not cause harm to other individuals or the state.
- This is particularly so when a patient has no hope of recovery and is suffering greatly, or is in a vegetative state and kept alive by medical apparatus.
- For the state to insist for its own benefit that the patient continue to spend financial and physical resources in order to continue suffering is perverse.
There is also a broader ethical and theological perspective:
- India’s Constitution draws upon Western liberal ideals and the constitutions wherein they are enshrined.
- The philosophy of Western thinkers such as Thomas Aquinas and Immanuel Kant goes against the idea of Euthanasia.
- But Indian philosophical and theological traditions across various strands of thought—from Jainism to Buddhism and Hinduism—have a more nuanced understanding of an individual’s right to decide on their life and the ethical considerations therein. That understanding dovetails here with the evolution of democratic thought and the limits of state power.
Government has done well to propose this bill, its formulation fails on one front:
- In Clause 9, it says that relatives, medical personnel and the like can apply to the relevant high court for “withholding or withdrawing medical treatment of… a competent patient who has not taken an informed decision”.
- This is dangerous.
- The bill defines informed decision in subjective terms pertaining to an individual’s understanding of the nature of their illness and the forms and consequences of treatment.
- As long as the individual is competent, it must not be left to anyone else to judge the merit of their understanding in something as fundamental as their life.
- This has the potential for misuse and is antithetical to an individual’s fundamental rights. It must be amended before the bill is introduced.
Conclusion:
- Although the ethical and philosophical arguments for passive euthanasia apply equally to active euthanasia, the government has made the correct decision in addressing only the former at the moment.
- By doing so, it has curtailed the potential for misuse of the proposed legislation.
- A revised bill would be a significant step towards allowing suffering individuals a measure of human dignity.
GS PAPER 3
[1] Discipline yourself
Issue
- Review of Fiscal Responsibility and Budget Management (FRBM) Act.
- For background, refer earlier article N.K. Singh to head panel to review FRBM Act
- Click on Fiscal Responsibility and Budget Management (FRBM) Act for basic information
Objective
- The government wants the committee to review the law to see if it is possible to build in a provision for a counter-cyclical policy.
What is a counter-cyclical policy?
- Procyclical and countercyclical are terms used to describe how an economic quantity is related to economic fluctuations.
- The terms are often used loosely to describe a government’s approach to spending and taxation. A ‘procyclical fiscal policy’ can be summarised simply as governments choosing to increase public spending and reduce taxes during an economic boom, but reduce spending and increase taxes during a recession.
- A ‘countercyclical’ fiscal policy refers to the opposite approach: reducing spending and raising taxes during a boom period, and increasing spending/cutting taxes during a recession.
Challenges before the economy
- The challenge for the committee would be not just to define a counter-cyclical policy but also to build it into law considering that few countries have such provisions in their fiscal legislation.
- The other potential danger lies in providing a wide range that could provide leeway to governments closer to re-election to abandon prudent fiscal practices.
- But the true test of compliance with a legislation like the FRBM is when the economy is gripped by a slowdown, and governments are tempted to spend to sustain jobs and growth.
Conclusion
- Considering some of the hard won gains over the last few years and India’s record on fiscal prudence, hopefully, the N.K. Singh Committee would work on a set of recommendations that would lead to a conducive fiscal environment, which would help foster growth.
[2] Bank on the brink + Bank consolidation: An idea whose time has come
SBI begins merger with 5 associated banks. Click here for more.
Indian banking operates under three disparate regulatory policy regimes:
- The PSB industry, the private bank industry and the foreign bank industry.
- These industries have had different freedoms, incentives and constraints in respect to branch licensing, compensation, regulatory prescriptions, M&A and capital raising.
- PSBs are also overseen by the Central Vigilance Commission and the Central Bureau of Investigation.
Is it different this time?
- Maybe.
- SBI has tried this before and succeeded only partially.
- SBI initially had seven associate banks. In 2008, it merged State Bank of Saurashtra with itself.
- The merger was a test case to see whether all associate banks could be merged with the parent.
What are the benefits?
- Many.
- There are significant overlaps between SBI and its associates.
- Go to any large city where one of the SBI associates is based and you will likely see a branch of the parent bank not very far from a branch of the associate bank.
- They target similar client bases, at least in larger cities.
- Yet they run separate infrastructures—from IT systems to treasuries to compliance and risk management systems.
- Integrating these systems and eliminating the overlaps will save cost and capital.
Will it be a smooth process?
- No.
- Workers’ unions in India have always yielded considerable power, particularly within the public sector.
- The All India Bank Employees’ Association has already put out a call for a strike on 20 May.
- Given that 70% of the banking sector is still controlled by the public sector, these unions still have the ability to cripple the system.
- The government and the SBI management will have to tread carefully to avoid this if the process has to be smooth.
Could consolidation go beyond SBI?
- Possibly.
- If the proposed merger between SBI and its associates goes through, the government may get the confidence to go further and look at consolidation between other state-owned banks.
- It has been argued in the past that some of the weaker public sector banks should be merged with the stronger ones.
- It’s an enormous task. But if SBI can lead the way and successfully conclude a merger with its associate banks, it may become a slightly easier sell.
Specific challenges:
- The PSBs therefore, required to address three specific challenges — recapitalisation (to deal with NPAs, Basel requirements and for growth of their balance sheet), governance autonomy (from Parliament — for strategic moves like acquisition, the vigilance apparatus, and the ministry for CEO and board appointments), and HR autonomy (in recruitment and compensation).
[3] The way back for monetary policy
Issue
- Critical analysis of the monetary policies of the advanced economies.
Unconventional monetary-policy
- Use of a range of unconventional monetary-policy tools by the advanced economies has had benefits, it has also generated significant uncertainty, without fully stabilizing the world economy.
- Following the 2008 financial meltdown, the US Federal Reserve cut the policy rate to almost zero and pursued so-called quantitative easing (QE) by purchasing long-term securities from the public and private sectors.
- The central banks of the European Union, Japan and the UK soon launched similar unconventional programmes.
- The result was a vast amount of cheap liquidity that helped to stabilize the financial sector, restore stock and real-estate prices and increase domestic demand.
- All of this helped to limit the fallout of the financial crisis and push the global economy toward recovery.
Limits of Unconventional monetary-policy
- The benefits of unconventional monetary policy are diminishing, while the costs are increasing. Recognizing this, the Fed ended QE at the end of last year and raised its policy rate by 25 basis points.
- European Central Bank (ECB) and the Bank of Japan (BoJ) have adopted a negative interest rate policy—which amounts to charging a fee for bank reserves—to revitalize demand. Unsurprisingly, the effects on inflation and real output have been limited.
- Lowering interest rates below zero, however, has hurt banks’ balance sheets, reducing their lending capacity.
- The rate hikes will likely continue this year, though the speed and extent of the increases are uncertain.
Click on Quantitative Easing and Fed Tapering for background.
Effect on emerging economies
- Beyond the domestic sphere, unconventional monetary policies have had far-reaching spillover effects.
- In particular, they have sent emerging economies, with their financial links to advanced economies, on a capital-flow roller-coaster ride.
- The emerging economies were flooded with liquidity flowing from the advanced economies. Large capital inflows led to overheating and inflation, asset-price bubbles and rapid currency appreciation.
- Then, the Fed’s tapering of QE led to the sudden withdrawal of that capital, creating a risk of financial disruption and currency crises.
- Because advanced economies’ unconventional monetary policies have also depreciated their currencies and stimulated their exports, the risk of competitive devaluations is now a real concern.
- If, say, the BoJ moved to intervene outright in the exchange-rate markets to depreciate the yen, the odds that the People’s Bank of China and the Bank of Korea would opt for weaker currencies would increase.
- All of this would be highly destabilizing, particularly for emerging economies like Brazil that are facing a brutal combination of internal and external challenges.
Is there any hope for any prudent approach?
- Instead of viewing all of this as motivation to back away from unconventional monetary policy, however, some economists are recommending that the ECB and the BoJ pursue an even more extraordinary policy: so-called “helicopter drops”.
- The idea, introduced by the Nobel Prize-winning economist Milton Friedman in 1969, entails the distribution of freshly printed money directly to the public, with a commitment from the central bank never to withdraw it.
- Monetary finance is essentially equivalent to a tax cut, with the central bank committing to purchase government debt.
- Such a policy could undermine central banks’ long-term independence.
- Moreover, it would enable governments to monetize fiscal deficits without constraints, and potentially to abuse money-printing power for political considerations.
- And it might not even work as intended, with the money benefiting only certain groups.
- Given the difficulty of regaining lost sovereignty and credibility, central banks must keep helicopter drops as a last resort.
What should be done?
- What advanced-country central banks should be doing now is implementing monetary policies aimed at restoring their credibility, while governments focus on implementing effective fiscal policies and structural reforms.
- Crucially, advanced and emerging economies must coordinate their policies, in order to foster confidence and strengthen growth.
- This is the only way back onto the path of sustained global economic health.
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