Won't the ICAs idea face similar challenges like S&P, Moody's did during the housing bubble? S&P and Moody ended up grading up the bonds (used as a catch all term) because they feared that the other one would be all too eager to give the higher rating. Won't similar dynamics evolve here?
PS: There is a scene in The Big Short showing this.
Hi, absolutely. But that's manageable to a large extent. The licensing mechanism for ICAs needs to have a minimum set of criteria that must be met failing which ICAs can be barred. For example, the principles for age-appropriate certification must be adhered to by ICAs. CBFC's role will primarily be to check if these principles are being adhered to.
Hi RSJ and Pranay, great newsletter once again. Just a small thing, when you are making a matrix such as the one based on China’s Gilded Age: The Paradox of Economic Growth and Vast Corruption, it is better to show no arrows on the apparent x and y axes because a matrix doesn't have axes. The arrows give the impression that this is a graph but it isn't because on y axis you aren't moving along a fixed quantifiable variable i.e. you cannot quantify "What do you get in return?". Just a minor quibble by a scientist :)
Central banks, in such a scenario, can issue currency that has expiry dates, can attach conditions on spending/receiving it. CBDCs can then be used for directly increasing/decreasing the money supply, managing inflation, etc. It can incentivise or disincentivise people to consume/save/invest or what/when/where to consume/save/invest. It can manage people at large, can control behaviour. How do you look at such an extreme situation?
Yes, those are real possibilities. The central bank will have to restrain itself through guidelines on how far it can go. But it will increase the direct control over monetary behaviour in society quite dramatically
The CBDC requires internet and a smartphone for the Central Bank to transfer it to people bypassing banks right? In that case, the rural/gender digital divide also a matter of concern?
And can I envision the central bank with CBDC as a large Govt Bank which directly deals with the end-users, be it people or companies?
Hi Pranay,
Won't the ICAs idea face similar challenges like S&P, Moody's did during the housing bubble? S&P and Moody ended up grading up the bonds (used as a catch all term) because they feared that the other one would be all too eager to give the higher rating. Won't similar dynamics evolve here?
PS: There is a scene in The Big Short showing this.
Hi, absolutely. But that's manageable to a large extent. The licensing mechanism for ICAs needs to have a minimum set of criteria that must be met failing which ICAs can be barred. For example, the principles for age-appropriate certification must be adhered to by ICAs. CBFC's role will primarily be to check if these principles are being adhered to.
Hi RSJ and Pranay, great newsletter once again. Just a small thing, when you are making a matrix such as the one based on China’s Gilded Age: The Paradox of Economic Growth and Vast Corruption, it is better to show no arrows on the apparent x and y axes because a matrix doesn't have axes. The arrows give the impression that this is a graph but it isn't because on y axis you aren't moving along a fixed quantifiable variable i.e. you cannot quantify "What do you get in return?". Just a minor quibble by a scientist :)
Hi Jashan, as a proud engineer, I'm quite ashamed of that mistake. Thanks a lot for pointing it out. Happy to have readers like you. Will improve.
Hi RSJ,
Central banks, in such a scenario, can issue currency that has expiry dates, can attach conditions on spending/receiving it. CBDCs can then be used for directly increasing/decreasing the money supply, managing inflation, etc. It can incentivise or disincentivise people to consume/save/invest or what/when/where to consume/save/invest. It can manage people at large, can control behaviour. How do you look at such an extreme situation?
Yes, those are real possibilities. The central bank will have to restrain itself through guidelines on how far it can go. But it will increase the direct control over monetary behaviour in society quite dramatically
Hi RSJ,
The CBDC requires internet and a smartphone for the Central Bank to transfer it to people bypassing banks right? In that case, the rural/gender digital divide also a matter of concern?
And can I envision the central bank with CBDC as a large Govt Bank which directly deals with the end-users, be it people or companies?
Both your points are relevant and valid