Economic and Monetary Policy Direction
China India Japan America
Strategically as a matter of direction -
1. Increasing Money Supply before others do
2. Good to reduce rates to be able to push INR borrowing and be coat effective in exports
3. Leads to increased consumption and hence GDP Growth
4. Long term impact will be good as this will help increase Joint Ventures and foreign companies to come and invest as differential reducing
5. Increase in INR/USD or appreciation in Rupee is a boon for repatriation and hence lucarative to investors, Chinese have followed this strategy for more than 15 years,
6. This is in line with a long term strategy which was folllowed post 1988 Asian currency crisis which led to ‘0’ zero rate policy by Japan JPy (beating liquidity premium theory) in 1991., then by Swissy CHF from 1995-2010, USD from 1973 onwards…and USD index is , currency basket and parity of USD-CHF, Pound- Euro proves of strong power play of strategy.
7. 2008 onwards QE and blackrock with other funds have cinsistenly followed the beating of LPT by having 0.5% rates for almost 10 years!
8. All this has resulted Carry trade ( dumping own currency for other currencies ) and hence JPY/CHF/USD and cross hedging for interest rates appreciating Currency pairs. - This eventually leads to further depreciation of own Local currencies like INR etc due to lack of demand
9. For all this to happen, country like india and indian companies - have to increase international trade, appreciate currency, reduce inflation, be current and capital account surplus , create currency acceptability in international exchange and develop a robust large domestics money market (depth, breadth, settlement guarantee, multiple convexity and duration delivery) by allowing international players (investment banks) to trade. JGB’s are classic example for the same. Vietnam is implementing since last 3 years the systems and practices.
10. This should be the task for ADB, BRICS bank of creating Asian System. India should propose MM , IDBRT, NEAT, SGF, Currency Parity like LIBOR (Now accepted is SOFR). This is the only way to come out of slavery of USD/SWIFT/SOFR. Decoupling. As petrodollars are over and this will lead to addition of other currencies as reserve currency for Countries Central Banks, World Bank, ADB. USD is just a BITCOIN.
11. Gold revaluation by US is due as US will start another QE to handle its MM (bonds market) obligations of around 1-1.5(4 T) TUSD interests.
12. already Global GDP and US GDP has direct correlation with Bonds , QE and JGB as carry on interest and currency happens.
13. Banks (Treasuries) are going to make good profits on Currency and Bonds market as the direction is clear and bond prices to increase.
14. It is a vicious cycle where once into QE as tool, because of Inflation , stagflation, stagnation and interest differential, erosion in REER/PPP leads to Revaluation of Assets ( Implied ), and hence to be able to push economy and beat other countries, one has to have a direction and such clear systems and practices and should not change due to political changes and that is why Independence / Freedom of Central Banks / Monetary Authority - is a critical aspect of sustained growth !
Food for Thought!!
Happy Investing and Growing!
Dinesh Goel
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