Damage Uncontrol

Context: Instead of just increasing the number of billionaires and bloating their size, central bank monetary policy must actually focus on boosting the real economy, by stimulating growth; hence enabling employment.

Proliferation of Billionaires around the world

• Rising Inequality: 
• During the pandemic, finds a study by Swiss bank UBS and PwC, the world’s billionaires’ wealth went up by 27.5% and their numbers increased as well, 
• The World Bank estimates that the pandemic would push an additional 70 million to 117 million people into poverty. 
• Technological Disruption: along with first mover advantage, network effects creating oligopolies in the technologies business have contributes to the proliferation of billionaires.

Role of Monetary Policy in generating inequality

• Inflates the price of assets: in the developed world that has produced trillions of dollars of additional liquidity, which has inflated the price of assets.

• • • When bond prices go up, yield tumbles and enterprising millionaires borrow ultra-cheap money, and become billionaires.
    • For E.g. While the Quantitative Easing in the United States during Global Financial Crisis (GFC) was essentially a bank recapitalisation scheme, the liquidity introduced led to inflation in the price of assets.

• Feeding the stock markets: 

• Cheap oil, China as an efficient producer and exporter and propensity for the goods to be invoiced in dollars has led to low inflation in developed countries like the US and Japan.
• They continue to print money, to support growth, and end up feeding the stock markets across the world, spawning billionaires. 

Issues with the COVID-19 Resolution Framework:

• Meagre Relief: 

• Individual borrowers and Micro, Small and Medium Enterprises (MSMEs) who borrowed up to Rs2 crore from banks will not be charged ‘interest on interest’ (compound interest).. 

• The stimulus package is 21.1% of GDP in Japan, 13.3% in the US, 10.8% in Australia and 10.7% in Germany., while in India it was only 2% of the Gross Domestic Product.
• Jeopardizes the prospects for firms: and will result in not only in downgrading of their ratings but also  increase in Non-Performing Assets (NPAs).
• Inadequate Resolution Measures: Out of the total 3,774 cases of insolvency in 2018-19, only 43% got resolved or liquidated. 
• Mandatory imposition of financial parameters by the borrowers: will result in risk aversion by banks, shutting down of businesses and deterioration in employment opportunities.

Way Ahead:

• Need of Technology to target the money flow; 

• For E.g. Today, technology allows successful implementation of Helicopter Money, by directly transferring the money to citizens bank accounts.

• Use of financial tech. companies to device analytics and decision-making algorithms must be deployed to mediate capital directly to firms.

Conclusion: Rather than merely boosting stock prices, RBI’s target of creating liquidity should be to raise production and reach the targeted economic agents. The GoI should do more to provide ample stimulus to the economy.