Edition #03 - Proposal for NFIR, beating inflation without raising interest rates, ASEAN 2025 blueprint, and more!
In today’s edition
The proposal for an NFIR
The 2023 Union Budget in India changed many existing regulations and unfolded many new policies. The proposal of building a National Financial Information Registry (NFIR) was among these new introductions. An NFIR would basically act as a central repository for financial and related information.
The aim of building this infrastructure would be to promote financial inclusion & stability along with building a more efficient flow of credit. An example of the use case of such a system would be that lending agencies would get access to accurate and legitimate data and not have to deal with manipulated and asymmetrical data from different sources.
In her speech, Finance Minister Nirmala Sitharaman said that this system would be built in consultation with the RBI and necessary inclusion of public and private entities would be taken into consideration so as to create a well-rounded system.
Creating this financial repository would especially be helpful for lenders and borrowers as there would be complete transparency. This reduces risk which in turn helps in better pricing and interest rates.?
Beat inflation without raising interest rates?
The constant and periodic increase in interest rates in Australia is hindering the livelihoods of a large part of Australians especially the ones who have a mortgage. They are having to pay more out of their savings due to increasing interest rates leaving them with lower savings. Raising the interest rates has been a textbook tactic for central banks across the world to control inflation. It increases the cost of borrowing and hence decreases the demand for goods and services.?
But there must be a better alternative than paying banks extra from an individual’s hard-earned money. Instead of the RBA forcing people to give more of their income during an inflationary period to reduce or stop spending, households should get to keep that money and have access to it later, once the inflationary wave has passed.?
The amount instead could go into each individual’s superannuation account(retirement savings account) where it could generate interest and build wealth for each individual. This system would also help curb and delay spending achieving the same objective as before, except that this time, you are not paying the banks but rather saving it as per mandates.
This type of system was proposed in the past during World War 2 by British economist John Maynard Keynes. In war-stricken times when resources were mostly employed to prepare against war and keep supplies, to get individuals to spend less, rather than increasing taxes and interest rates, Keynes said that it would be much fairer to put in place mandated savings of some kind.?
He introduced a ‘Deferred Pay Card’ to be given to each employee. A certain amount of their wage would be set aside every pay cycle and the employee would get to choose where they want their money to be invested.?
Long story short, when we look at the current situation in Australia, a similar solution might be possible. In 2020, Australian economist Lachlan Kerwood-McCall wrote an interesting paper that echoed a similar system where an "adjustable compulsory savings mechanism" would be a great tool to manage inflation.?
Rather than the policymakers constantly adjusting the super guarantee of people’s superannuation accounts, he suggests that the RBA should mandate a portion of an individual’s weekly income. So rather than leaving it up to a person to make the choice with higher returns, a mandated savings cut would have an immediate effect.?
It only seems fair that if the RBA wants to take money off workers to reduce aggregate demand, why not give that money back to workers by putting it in their retirement savings as additional income for their retirement, rather than giving it to bankers in the form of higher interest payments? Only time will tell whether such ideas will be adopted and implemented.?
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ASEAN - 2025 blueprint - Financial sector
Under Indonesia’s chairmanship, the country will work with all members of the ASEAN group to review financial channels, ensure ASEAN's response to various changes and challenges, and make Southeast Asia an engine of sustainable world growth.?
The series of AFCDM-WG(ASEAN Finance and Central Bank Deputies Meeting-Working Group) meetings on February 6-10, 2023, in Bali initiated the 2023 ASEAN Chair on the financial line and discussed the development of ASEAN Blueprint 2025 that was reflected in various working committee agendas in the ASEAN financial sector in 2022 and 2023 work plan.
The WG meeting is a technical plenary level meeting where the outcomes of the previous WG gatherings are discussed along with the various ASEAN financial sector cooperation agendas, including a discussion of the Priority Economic Deliverables (PED) proposed by Indonesia.
PED focuses on health readiness, financial infrastructure, international taxation, inclusive financial digitalization for micro, small and medium enterprises (MSMEs), and sustainable finance. The PED would enable stronger financial cooperation & integration in the 2025 blueprint.
SEA nations would have a better capability to respond to global challenges and create better and more equitable economic recovery. 10 working committee meetings are convened by the Financial Services Authority, Bank Indonesia, and the Ministry of Finance to address various PED programs (OJK).?
At the meeting of the AFCDM-Working Group, the outcomes of the series of meetings will be reported and discussed. The ASEAN Finance and Central Bank Deputies Meeting at the end of March 2023 will report on the follow-up talks on the agenda from the series of meetings and seek guidance.
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