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The six-member panel under former RBI Governor Jalan was appointed on December 26, 2018, to review the economic capital framework (ECF) for the RBI after the Finance Ministry asked the Central Bank to transfer more surplus to the government from its excess reserves (Livemint 2019). As per the estimates, the RBI has over Rs. 9 lakh crore of surplus capital with it (Livemint 2019). Besides surplus capital transfer, the government is expecting Rs. 90,000 crore dividend from the RBI in the current financial year as against Rs. 68,000 crore received in the previous year (Livemint 2019). The finance ministry is of the view that the surplus of 28% of gross assets maintained by the RBI is well above 14% as per the global norms. The government thus believes that the RBI is being too conservative and is sitting over a huge pool which could be used by the government and will assist in reducing and constricting the fiscal deficit to 3.3% of GDP (reduced from 3.4% of the GDP set in February’s

Role of the central bank balance sheet 1. Ultimate means of settlement: One of the interesting features of the central bank's balance sheet is that its main liabilities are banknotes and commercial bank reserves, which are a form of money in the modern economy. Money is a form of IOU which allows agents to settle transactions. Agents should always be willing to accept money, as both a store of value and a unit of account, as long as they trust the issuer of money. While the banknotes play an important role in transactions, in most economies they do not make up the majority of money by value. Instead, commercial bank deposits form the majority of the money value. These balances are held by economic agents such as commercial banks and can be transferred electronically between depositors. The confidence in this type of money depends on the trust of people in the commercial bank where they hold the deposit. In most cases balances held in commercial banks are exchangeable on de

- Based on the book by Niall Ferguson According to Friedrich Engels and Karl Marx, money was merely an instrument of capitalist exploitation. I, personally, would not disagree with them too much. Such notions, of a world without money, existed amongst the European communists as recently as till the 1970s. Yet no communist state, not even North Korea has found practical to dispense money. History of Money Members of Nukak-Maku unexpectedly wandered out of the Amazonian rainforest in Columbia. These tribes were cut off from the settlements, had no concept of money or future. After their emergence, now they live in the clearance outside San Jose de Guaviare. After lifetimes of trudging all day in search of food, they are amazed that perfect strangers now give them all they need and ask nothing from them in return. However, the later tribes lived moneyless since they consumed as and when they found it. Even sophisticated societies like the Inca empire lived without money. L

-  by  Ben Bernanke in  G eorge Washington University   Money market funds (MMMFs) are investment companies that sell shares and invest the proceeds in short-term assets. MMMFs historically has almost always maintained stable 1 dollar share prices, so they act very much like a bank. They are usually used by institutions like a pension fund. These institutions do not invest their money in banks because such large sums are not insured by the banks or Fed, instead, MMMFs, despite not being insured as well, invest in short term safe liquid assets. They are used by investors like checking accounts ( redeem shares on demand for dollar 1 ) and they also earn interest.  MMMFs invest heavily in commercial paper (CP) and other short term assets. Commercial paper is a short term (typically 90 days or less) debt instrument issued by corporations. CP is used by non-financial corporations to pay immediate expenses such as payroll or inventories. Financial corporations may also issue CP to raise

-  Based on  Lecture (4) by  Ben Bernanke in  G eorge Washington University   This lecture discusses monetary policy responses to the recession, the sluggish recovery, post-crisis changes in financial regulation, and implications of the crisis for central bank practice. A financial panic in the fall of 2008 threatened the stability of the global financial system. As the lender of the last resort, the Fed provided liquidity to help stabilize key financial institutions and markets. The fed worked closely with the Treasury and other regulatory agencies like FDIC and SEC as well as with the foreign central banks to provide enough liquidity (internationally through currency swaps providing dollars to foreign central banks). The fed continued its efforts to strengthen the banking system post-crisis. It undertook the stress test of 19 major banks of the US economy in 2009 and disclosed the results to the public to make them realize their financial situations. This helped restore the con

-  Based on  Lecture (3) by  Ben Bernanke in  G eorge Washington University   This lecture describes the financial crisis, its implications and the policy responses by the federal reserve.  As a reminder, the central banks have two main tools, that is, the lender of last resort and the interest rates. Also, the last lecture has discussed several vulnerabilities in the economy. A key trigger, to reiterate was, 1. Exotic mortgages (such as adjustable-rate mortgages or ARMS) and sloppy lending practices (such as no-doc loans) 2. Another feature of these mortgages was that, for them to be paid back it was necessary for house prices to increase. This was because for the earlier times under ARMS the mortgage rates were low, which subsequently increase with time. In order to pay back, it was required to refinance these loans with more standard ones. So, ones the prices stopped rising, the borrowers found it difficult to refinance and were stuck with high rates Examples of bad mortgag

-  Based on  Lecture (2) by  Ben Bernanke in  G eorge Washington University   This lecture explains the development of central banking after world war 2, focusing on the origins of the recent financial crisis (2008-09). The 1950s - post-war problems Before proceeding, it is good to keep in mind the two key objectives of the central banks, that is, macroeconomic and financial stabilities. Now during the world war 2, the Fed was pressurized by the treasury to keep the longer-term interest rates low, so that the government debt (war finance) can be easily financed. However, keeping interest-rate low during the period of high growth leads to risks of rising inflation. So, by 1951 treasury agreed to let Fed independently decide the interest-rates and it is called as the Fed-Treasury Accord of 1951. This was a sign for the requirements of independent central banks since they could take long term approach and deliver better results while being away from short term gains as is generally