Vijay Kumar Gaba

 On 29^th June 2022, Reuters reported a trade deal that could have material and far reaching implications for India’s external trade in particular and the global trade in general as well. As per the agency, it has accessed documents from the Indian Custom department showing that Ultratech, the largest cement manufacturer in India, has imported 1,57,000 tonnes of coal, worth USD25.81million (appx INR2000cr), from Russia. The consignment is invoiced in Chinese currency Yuan (CNY), implying that the payment will be made in CNY, without using the global payment network like SWIFT. The agency also reported that other companies have also placed orders for Russian coal using CNY payments. (see here)

This could be the first instance of an Indian company using CNY to make international payments. Apparently, this time the transaction could be to circumvent the international sanctions on Russia. Ultratech would be using USD to buy CNY in China or Hong Kong to pay the Russian coal producer SUEK. But the success of this transaction may encourage companies to explore INR-CNY and INR-JPY routes of payment in future. It is pertinent to note that Russia and China are successfully conducting CNY-RUB trade for many years.

In the fiscal year FY22, India had a trade deficit of USD79.55bn with China (including Hong Kong) and a trade surplus of USD32.8bn with the US. These two countries are India’s largest trade partners, accounting for 26% of India’s total foreign trade. Notwithstanding the persistence of geopolitical conflict and political rhetoric, China’s (including Hong Kong) share in our foreign trade has risen to 14.4% in FY22. China accounted for 18% of India’s total imports in FY22, against 7.6% for the USA. An INR-CNY payment system in bilateral trade could be extremely beneficial for India, as it may help in bridging the trade deficit with China by making our exports to China more competitive.

Besides, India runs a trade deficit of USD28bn (FY22) with Saudi Arabia, mostly on account of oil imports. Saudi Arabia in turn runs a trade deficit of similar magnitude with China. Successful INR-CNY trade with China and Russia could open doors for non USD settlements with other trade partners also. This could potentially reduce dependence on USD for payment settlement.

It may be argued, CNY could not be as reliable a currency as USD, given the reputation of the Chinese political system and authoritative government. The US has always accused China of manipulating its currency. However, so far not much irrefutable evidence is available to conclude that PoBC has unduly manipulated CNY or exploited its trade partners. On the other hand if we compare the strength in USD considering the amount of USD printed by the US Fed in the past one decade, reasonable doubts emerge over sustainability of USD’s present strength.

The Indian Express highlighted in its 17^th March editorial (see here), “The weaponization of trade, the imposition of sanctions and the exclusion from SWIFT (Society for Worldwide Interbank Financial Telecommunication) by the US could trigger a faster de-dollarisation as countries displaying diplomatic and economic autonomy will be wary of using US-dominated global banking systems.

The US dollar, which is the world’s reserve currency, can see a steady fall in the current context as leading central banks may look to diversify their reserves away from it to other assets or currencies like the Euro, Renminbi or gold.

The notion of de-dollarisation sits well in the thought experiment of a multipolar world where each country will look to enjoy economic autonomy in the sphere of monetary policy.”

V. Ganpathy, a global expert in international trade and technology transfer, also opined (see here) that “India operates a huge trade deficit in excess of $150billion. One of the best way to counter this trade deficit is by introducing Rupee trade for major imports.” Ganpathy believes that the benefits of Rupee trade substantially outweigh losses. He believes, “An aggressive international trade lobbying is required to actively promote Rupee trade with dominant economies.” If India wants to become a global trade player, “the local currency should be the preferred trading instrument.”

The Ultratech deal could just be a small beginning for a major change in India’s foreign trade paradigm.

 In the past couple of months there has been a visible rise in the reports expressing fears of an implosion in Japanese, Chinese and Russian economies. The reasons behind these fears are quite diverse. Of course there is nothing new in these reports. Experts have been predicting an implosion in the Japanese economy since the early 1990s’ in the Chinese economy since 2008 and the Russian economy since 1917.

Personally, I do not subscribe to any of the theories that forecast implosion in the Japanese, Chinese and Russian economies in the near future. Nonetheless, I believe that the study of the growth, fiscal and indebtedness profile of Japan is important from two viewpoints, i.e., (i) impact on the global economy, should the BoJ losses control over the situation; and more importantly (ii) impact on the global economy if the US economy (consumption, growth, fiscal profile, etc.) follows the Japanese economy and gets trapped in this vicious cycle of high debt and low growth; and the consequences if USD loses its prominence as the global reserve currency.

I noted a few pointers for this study from some recent reports relating to Japan. These simple and most visible pointers indicate where the US economy could head if a new set of innovative monetary and fiscal policies are not implemented soon. This would be as imperative as the first set of innovative monetary and fiscal policies implemented in the wake of the global financial crisis.

Japanese Debt – the vortex

As per some recent reports the Bank of Japan (BoJ) now owns over 50% of $12.2trn debt issued by the government of Japan. The public debt of Japan is now 266% of GDP. The Public Debt to GDP ratio of Japan has consistently worsened since 1992, when it was below 70%. Considering that the GDP of Japan is rising at a snail pace of 1-1.5%, and the debt is growing at a faster rate, it is most likely that the debt situation may worsen further.

The sharp rise in debt has not been much of a problem so far as it has been accompanied by consistent fall in bond yields. In fact the yields have been negative during 2015-2020. Moreover, since most of the government debt is bought by BoJ and local banks and funds, Japanese yields have been insulated from global trends for the past 3 decades. Even during the global financial crisis, the Japanese bond market remained mostly unaffected by the global turmoil.

The BoJ has been struggling with persistent deflationary pressures for most of the past three decades. For most part of the past two decades, the inflation in Japan has been in negative territory. Inflation has persisted below the target 2% rate, except for a brief violation in 2014 in recent months.

Though the BoJ has not taken the path of monetary tightening to ward off the inflation, the local bond yields have risen to positive territory. Moreover, the reversal in the monetary policy of the global central banker has materially widened the gap between the Japanese and global bond yields. Nothing new in this, but the questions about sustainability of Japanese public debt are hitting the headlines again. Recently, it was reported that “The Bank of Japan may have been saddled with as much as 600 billion yen ($4.4 billion) in unrealized losses on its Japanese government bond holdings earlier this month, as a widening gap between domestic and overseas monetary policy pushed yields higher and prices lower.”

In recent years, the household debt in Japan has also started to rise. Household debt in Japan had reached a high of 78.7% of GDP in 2000. It subsequently declined to a low of 59.9% in 2015. As per the latest available data, it had again reached 67.4% of GDP in December 2021. Japanese households owe a debt of US$3.2trn; which is 23% of total domestic credit of US$13.5trn. A rise in lending rate could further slow the economic growth in Japan; besides enhancing the stress at household level.

 No need to lose sleep over NASDAQ

When the independently priced cryptocurrencies were melting in the past few months, a stablecoin Tether (USDT) has been relatively much more stable. The value of USDT did show some volatility, but it was marginal in comparison to some other stablecoins like Terra and independently priced cryptocurrencies.

Being a technology challenged crypto illiterate person, I must outline my understanding of a stablecoin to make the context clear. In my understanding, a stablecoin is a crypto token which is backed by some financial or real asset, whose value is pegged to a fiat currency like USD. In simple terms, it is a tradable electronic entry priced in a fiat currency (like ADR of an Indian company tradable in US) which has an underlying asset like bonds. Theoretically, the price of a stablecoin shall move in tandem with price of the underlying; but in practice the movement in price could be less or more than the underlying.

Curious by the relative stability of USDT, I discussed the issue with some experts and crypto traders. While no one offered any satisfactory answer, the common thread was a conspiracy theory. It is commonly believed that a significant part of trade by “sanctioned jurisdictions” like Russia, Iran etc., is happening in stablecoins, USDT being the most popular one. Secondly, it is suspected that USDT is also a preferred currency for money laundering in many emerging economies.

Of course, I do not understand much of this, so I cannot make any intelligent remarks on this. Nonetheless, I must say that (i) tech enabled alternatives to gold are here to stay for long; (ii) the challenges to USD as the exclusive global reserve currency are rising gradually; and (iii) the global economy (and markets) might delink from US economy (and markets) sooner than previously estimated.

The experts have extensively talked about Japanification of the US economy (and markets) since the global financial crisis (GFC) hit the world in 2008 and the US Federal Reserve unleashed a torrent of quantitative easing (dollar printing). With massive monetary and fiscal corrections now becoming increasingly inevitable, in view of the rapidly changing (a) global trade dynamics and (b) global geopolitical balance; the probability of experts’ prognosis about the US economy coming true is rising gradually.

In my view, the forecast for the global economy and markets for next few years must account for these probabilities; howsoever small these probabilities may appear for now.

I would therefore not like to undermine the movement in NASDAQ and S&P500 to form my view on Indian markets and/or deciding my allocation to say IT services sector, for next few years. I would also like to read the predictions about a “lost decade for equities”, in relation to developed markets, especially US, without correlating it to India. I am also aware of the fact that equities in two major global economies China (15yrs) and UK (5yr) are already witnessing this phenomenon of lost decade; and this has not impacted the performance of other European and Asian markets materially.

In simple words, I do not see much merit in drawing correlations between GOLD-S&P500; Nifty-S&P500; and NIFTY IT-NASDAQ. The Beta of Nifty vis à vis S&P500 and NASDAQ shall reduce incrementally. There is no need to stay awake till late night to watch US markets.

Recently, some RBI officials reportedly told the parliamentary standing committee on Finance that RBI fears increased “dollarization” of the Indian economy due to popularization of cryptocurrencies. The representatives of the central bank reportedly testified before the committee that “…almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, which may eventually dollarize a segment of the Indian economy. The cryptocurrencies could be a medium of exchange and replace the rupee in financial transactions, both in domestic and cross-border transactions, affecting the monetary system and undermining the RBI’s capacity to regulate capital flow.”

In this context it is pertinent to note that—

(a)   As per the latest available World Bank data, foreign trade accounts for ~38% of India's GDP. A substantial part (~86%) of this trade is invoiced and settled in USD; whereas only 5% of India’s imports are from and 15% of India’s exports to US.

(b)   It is estimated that approximately 60 to 65% of India’s foreign currency reserves are held in US dollar assets.

(c)    At the end of FY21, India had about ~US$570bn of external debt; about 21% of GDP. Out of this ~18% was short term debt (due for repayment in 12months). Though the composition of this debt is not readily available it is safe to assume that a significant part of this debt is denominated either in USD or currencies that are pegged to USD or are closely linked to USD, e.g., CNY, AED, SAR, SGD etc.

(d)   In the recent consumer price inflation (CPI) data (April 2022), about 20% of the total CPI inflation was imported inflation, caused by rise in global prices and depreciation of INR against USD.

This implies that a substantial part of the Indian economy is already “dollarized”. To that extent, the concerns of the RBI are valid and understandable. This also explains the “go slow” policy on rupee convertibility and stricter control over capital account.

As per Gita Gopinath, renowned economist and Deputy Director IMF—

“The greater the fraction of a country's imports invoiced in a foreign currency the greater its inflation sensitivity to exchange rate fluctuations at both short (1 quarter) and long (2 year) horizons. For the U.S. with 93% of its imports invoiced in dollars the consequences are far more muted than for a country like India that has 97% of its imports invoiced in foreign currency (mainly dollars).

When a country's currency depreciates the expectation is that it will stimulate demand for the country's products as it lowers the relative price of its goods in world markets. This is unlikely to be the case for many countries that rely on foreign currency invoicing for their exports. This does not imply that exporters in non-dominant currency countries do not benefit from a weaker exchange rate. They do, but it mainly works through increases in mark-ups and profits even while the quantity exported does not change significantly. The benefits of higher profits in a world with financial frictions can of course be large and raise production and export capacity in the longer run.”

The question is what India should do to avoid dollarization of the economy. Obviously, banning cryptocurrencies and controlling foreign currency transactions may not be sufficient. We would need to materially increase the invoicing of our exports in INR.

The Nobel laureate Robert Mundell propounded the Mundell-Fleming paradigm in 1999 to address this issue. As per this paradigm, to gain from the weakness in local currency (vs other currencies), the exports must be invoiced in local currency.

For example, if Indian exporters invoice their products/services in INR, their prices do not fluctuate often. In this case, depreciation of INR against the importers’ currency will immediately result in cheaper cost for the importer and therefore lead to demand shift towards Indian products/services. However, if Indian exporters price their products/services in USD (as is the case presently) the shift to Indian producers will depend upon the equation between USD and Importer’s currency.

The key for India therefore is to develop more bilateral relations where the trade could be conducted in local currencies, e.g., India exporting in INR and importing in the currency of suppliers. The bilateral FTA route being adopted by India in the recent past is perhaps the best way to achieve this goal.

The most interesting part of this changing paradigm would be how the bilateral trade relationship between India and China develops. China is one of our largest trade partners. Trade relations with China are obviously critical for India’s overall economic growth and development. The ideal outcome would be if we can reduce our trade deficit with China through mutual agreements, e.g., by increasing export of services, food etc.

The past few months have been quite trying for investors and traders in the financial and commodity markets. The markets have been jittery, and indecisive. Obviously, the market participants are becoming somber in their market outlook for the short term.

The global order is perhaps undergoing a major reset and the picture of emerging global order is incomplete. Consequently, the present global economic, geopolitical and financial conditions are quite uncertain and challenging.

As per the conventional wisdom, at this time the investors should be busy assessing the likely contours of the emerging global order, forecasting the investment opportunities and positioning themselves as per their assessments; whereas the traders should be deciphering the opportunities arising due to the transition. The shifting investors’ positioning may create opportunities for the traders in the markets.

I noted the following key trends in the markets to assess how the investors’ positioning is shifting and where traders are finding opportunities. However, I am not sure if the current market positionings are totally in consonance with the conventional wisdom. Maybe, it is early days in the transition; or the uncertainties are too much; or it’s a combination of both. Perhaps, we would know this with the benefit of hindsight only.

1.    After lagging the emerging markets for 15years, the developed markets have started to outperform in the past one year. Prima facie it may look like a case of rising risk aversion amongst global traders. But investors must be appreciating that the risk in developed markets is much more pronounced than the emerging markets. The central bankers may have exhausted the newly acquired monetary policy tools that supported the developed economies and consumers in the post Lehman era. Unwinding of unsustainable liquidity and debt may bring more developed economies to the brink than the emerging markets.

For example, in the past 5years most of the sovereign debt issued in the Euro area has been bought by the European Central Bank (ECB). The countries that infamously came to the brink during the global financial crisis (Spain, Italy, Greece etc.) have raised huge debt without demonstrating any sustainable improvement in their servicing capability. Now since the ECB is unwinding its bond buying program, next year over EUR250bn worth of sovereign debt will have to be sold to the private investors who may not be as obliging as ECB has been in the past 12years. Unsustainable debt at the time of rising rates would make these countries riskier than the emerging markets like China, India, Brazil, Korea etc.

Even the USA, is facing a stagflation like condition. Rising rates may make USD stronger and hurt the US exports, further pressurizing the growth.

2.    Most of the countries are struggling with inflation that is mostly a supply side phenomenon. However, instead of improving the global cooperation to ease the supply chain bottlenecks and stimulate investment in further capacity building, most countries have chosen to stifle the global cooperation and invest in local capacities. This will (i) prolong the present supply shortages and (ii) have far reaching implications for global trade and cooperation.

3.    Investors have not preferred the conventional safe havens like gold, CHF, US treasuries etc. in the past one year and the EM currencies have not sold out the way these used be in past instances of extreme risk aversion.

4.    Numerous experts are calling for commodity supercycle and persistent inflation. This is a clear case of mistrust in effectiveness of the central bankers, who have not only successfully averted two major disasters in the past 12years – first the global market freeze post Lehman collapse and secondly global lockdown post outbreak of pandemic. I find no reason to believe that they will fail in reining the inflation using monetary policy tools. In fact most commodity prices have shown signs of peaking after the US Fed's aggressive posturing on monetary tightening. Higher cost of carry, tighter margins and slower growth should kill the inflationary expectations in no time; particularly when most of the commodity demand could actually be speculative or in anticipation of future demand assuming the present tightness in supply to continue.

For record, the commodity heavy stock market of Brazil has been one of the worst performers in the past one month.

5.    The criticism of cryptocurrencies is weakening and their acceptance is rising by the day. Many harsh critics of cryptoes have softened their stand to conditional criticism. While the opposition to cryptoes use as currency is still strong, their role as store of value is gaining wider acceptance. Obviously, it will have implications for Gold and USD –the two most important conventional ‘store of value’ instruments.

6.    The global investors seem to be losing hope in China now. Till last year the valuation argument was very strong in favor of Chinese equities. No longer is the case. Despite 15yrs of no return, not many are arguing convincingly for Chinese equities now.

7.    The Free Trade Agreement (FTA) between the UK and India may be a positive consequence of Brexit for India. The FTA with Australia has also been signed. India has defended its bilateral trade relations with Russia despite immense global pressures in the wake of ongoing Russia-Ukraine war. Besides, the UN has not taken any significant measures to end the war.

It has to be seen whether we are entering an era of bilateralism at the expense of dissipation of multilateralism. If that be so, the role of the multilateral charters like WTO, UN, IMF etc. will have to be reassessed in the emerging global order. 

The First World War resulted in the decimation of some large empires like the Ottoman Empire, Russian Empire, and Austro-Hungarian Empire. By the end of the war, the map of Europe had changed dramatically. The communists had taken over power in Russia and neighboring smaller states to form the Union of Socialist Republics (USSR). Many other states in the Eastern Europe also saw the rise of communism. Germany and Italy fell for an ultra-nationalist (fascist) propaganda. The European imperialists like Portugal, Spain, France, Netherlands (Holland) and Britain started to lose their grip over their colonies in Asia and Africa. The Spanish Flu and the Great depression also shaped the politics of Europe in the post war period. This war also saw the emergence of the USA as a formidable global power.

The Second War completed the transition to the new world order with the decline of the British Empire, division of Germany and Korea, destruction of Japan and strengthening of the USA and USSR. The process of decolonization that started post second war resulted in about 3 dozen states in Asia and Africa gaining autonomy or independence.

Many new institutions were created and multilateral treaties were signed, palpably to maintain peace and accelerate the process of rebuilding the countries destroyed by deadly wars, natural disasters, and colonial exploitation, many global institutions. United Nations, International Monetary Fund, NATO, Bretton Woods, WTO, Warsaw Pact, Vienna Convention, Paris Peace Accord, Geneva Convention are some of the prominent institutions and treaties.

Within a decade of the end of WWII, the world became bi-polar with the USA and USSR holding the pole positions. The USA was leading the larger non-communist world, providing technological and strategic support to the countries. Its currency US Dollar (US$) obviously became the preferred medium of exchange and also store of value. The USSR was extending its influence in communist Eastern Europe and Central Asia.

Colonialism was now reinventing in the form of economic and strategic dependence. The wars were now more driven by economic maneuvering rather than the movement of troops. The global energy crisis triggered by the events in Iran in the 1970s, led to the USA denouncing the gold standard (free convertibility of US into defined quantity of Gold) in 1974. The US and Saudi Arabia deal to price its oil only in US$ terms established the greenback as unquestionable global reserve currency, as most post war financial institutions were already under US control and dealing in US$ mostly; and major commodity markets (CBOT, LME, NYMEX etc.) were already pricing global commodities in US$ terms. Post dismantling of the USSR in the 1990s and China joining the WTO in the 2000s, the position of US$ in global trade and finance strengthened further.

However, post the global financial crisis of 2008-09, the unprecedented expansion of the US Federal Reserve balance sheet (implying quantitative easing or printing of new money) has triggered a debate over sustainability of US$ as global reserve currency. Emerging global powers like China and India have also been aiming for a larger role in the global institutions like IMF, to the detriment of US influence over these institutions.

The currency (and tariff) wars between US and China and US and Europe in the past one decade are other manifestations of the global reset. China has also been motivating its trade partners to deal in CNY. Covid-19 pandemic caused recession and lockdown has allowed time to global powers to rethink their strategies and plan their futures.

The recent Russia-Ukraine war shall give further impetus to the Reset. Russia engaging in non USD denominated trade with partners like China, India, and Iran etc. Reportedly, China and Saudi Arabia are meeting to discuss pricing of oil in non USD terms.

It is not WWIII or the nuclear threat that investors should be worried about in this decade. It is the diminution of the USD as a global reserve currency. If the US cannot borrow in US$ to fund its profligate fiscal and monetary policies, the inflated asset prices will face a reality test almost immediately.

Insofar as India is concerned, I believe that it would be the first time in the past 200 years that India would be participating in a global reset from a position of strength. In all previous resets (colonization, industrial revolution, post war realignments, fiat currency, etc.), India was mostly the adversely affected party.

This time however our exposure to the global economy and geo-politics is much wider and deeper; and so would be the impact of any material change in the global order. It is critical that India demonstrates its competence and willingness to play a prominent role in the global affairs, economic, strategic as well as geo-political, to be accepted as a main player in the game.

In my view India will not be a water boy in the next game. It will be included in the final playing XI as an all-rounder, i.e., an economic, strategic and geo-political major. Look forward to good times ahead, and brace for the turbulence.

 Historically, at some point in time copper, gold and/or silver coins had been legal tender in India; and in many other economies as well. Traditionally in Indian society, these metals have enjoyed acceptance as ‘sacred metals’ having religious, medicinal and economic importance.

With the rise in its industrial usage, copper may have lost its ‘precious’ status, but gold and silver still continue to enjoy ‘precious’ status, even though these are no longer legal tenders in India; and most other jurisdictions. With advancement of technology and globalization of Indian socio-economic milieu, the ‘sacred metal’ aspect of gold and silver is also diminishing gradually.

In past few years, the government of India has made significant efforts to encourage people to own gold in non-physical form, through sovereign gold bonds (SGB). These bonds offer interest income at the rate of 2.5 percent annually, beside capital gains benefits to the holders. In recent years, the digital gold has also been gaining popularity due to ease of transaction and holding. This comes after many decades of discouraging the gold for investment and consumption.

Cryptocurrencies (e.g., Bitcoin) are relatively new phenomenon in the global financial ecosystem. Unlike their nomenclature, these are not exactly currencies so far. Only El Salvador has declared Bitcoins as legal tender; whereas there are some jurisdiction (e.g., China, Indonesia, etc.) that have put a total ban on use of all cryptocurrencies as medium of exchange.

Crypto NOT currency as yet

To achieve ‘currency’ status, cryptocurrencies would need to gain much wider and deeper acceptance; which usually comes with time and awareness. Gold took centuries to gain wide acceptance as medium of exchange and ‘valuable asset’ status. Few cryptoes may gain this status in next few decades, simply because modern technology has made things much faster.

In India, the cryptocurrencies have gained tremendous popularity in past five years. It is estimated that there are over 100 million people in India owning one or more cryptocurrencies; the largest number for any country in the world. This number is materially higher than the number of people owning publically listed shares in India. The value of cryptocurrencies owned by Indian citizens is estimated to be close to US$900bn.

Regulating cryptocurrencies

The government has proposed to introduce a Bill in the forthcoming session of the parliament to regulate cryptocurrencies. The Bill titled ‘The Cryptocurrency and Regulation of Official Digital Currency Bill 2021’, aims to “create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India” and prohibit all private cryptocurrencies in India, with certain exceptions to promote the underlying technology and its uses."

Earlier, a high level inter-ministerial committee had suggested ban on private cryptocurrencies in India, except any virtual currencies issued by state. However, the government refrained from pushing the legislation in the Budget session. It was felt that a balanced approach is required in the matter, for which wider consultation with all stakeholders is important.

The Standing Committee on Finance recently highlighted many serious concerns over the obscurity of cryptocurrencies, operations of crypto exchanges and impact on the economy.

The stakeholders like RBI, Finance Ministry, Home Ministry, Blockchain and Crypto Assets Council (BACC) and industry and commerce bodies, the CII and ASSOCHAM, etc. made detailed presentation to the prime minister regarding opportunities and threats posed by cryptocurrencies and the need for appropriate regulatory framework.

Most significantly, the BACC represented that crypto assets could be treated as “utility”, “security”, “property tokens”, “intangible commodities”, or “virtual assets” that would ensure that the usage of tokens was governed appropriately and they were not confused with legal tender.

From the indications available so far, it appears that the government is totally against the use of cryptocurrencies as a medium of exchange (legal tender), but it supports the development and use of blockchain technology. It is therefore likely that a regulatory framework may be provided for ownership, transfer, sale and taxation of (select or all) cryptocurrencies. In that case the permitted cryptocurrencies may be treated as “capital assets” under the taxation laws.

It is also likely that the proposed legislation may permit a digital currency based on blockchain technology, to be developed by RBI or any other public agency. Obviously, such currency will not have the traits like Bitcoin, which is a decentralized and distributed digital token with finite supply. RBI’s digital currency will most likely be a centralized currency with infinite supply, just like fiat currency. In simple terms, RBI’s digital currency may be a dematerialized currency note that is delivered as a book entry in the receivers’ account.

Therefore, a fiat digital currency should not be confused with a decentralized and distributed cryptocurrency.

An idea whose time has come

In every democracy, especially the socialist ones, the governments have the natural tendency to regulate every innovation; simply because most new innovations make few people richer than the rest. With every new innovation, the fear of rise in inequalities also rises. The tendency to overregulate the innovations is therefore usually driven by the concerns to assure the majority of population that stays at the bottom of the pyramid.

A classic example of this was the attempt of British government to ban the use of cars on public roads in early years of automobiles. The argument was that this may have negative implications for the employment of poor people running horse carts on streets of London.

The good thing is that there is no historical evidence of a government regulation killing an innovative idea which was ready for adoption by the wider sections of public. Expansion of organized retail is a classic example in recent Indian context.

The dematerialization of securities is inarguably the single most important reform in the history of Indian capital markets. The idea was initially opposed by the market participants and bureaucrats. Computerization of banks and stock trading were other ideas that were not accepted easily by various stakeholders.

Failure to self-regulate is also a major catalyst for the overregulation. Securities’ market in India was mostly self-regulated for first 100 years. It was the colossal failure of self-regulation during late 1980s and early 1990s that pushed the government to intervene. BSE, a self-regulatory organization (SRO), that enjoyed more than 50% market share in a 29 players market till mid-1990s, is now contended with less than 10% market share in 2 player market.

“Most of the cryptocurrencies may not pass the test of time and fail, causing material losses to investors” is not a valid argument against cryptocurrencies. During 19^th and 20^th century, thousands of banks and insurance companies failed causing instability in markets and material losses to investors and depositors. More recently, many private airlines, telecom companies, infrastructure builders, private & cooperative banks, NBFCs, HFCs etc have failed in India causing huge losses to investors, lenders and the exchequer. Would anyone accept this failure as valid argument for banning these activities in private sector!.

Cryptocurrencies a bad omen for Gold

A well regulated market for cryptocurrency could be a bad omen for demand for the traditional “valuable assets’ like gold and silver. Arguably, the factors like popularity and spread of technology in common man's life; rising fascist and communist tendencies due to worsening socio-economic disparities; rise in electronic transactions (personal, social and commercial) thus lower risk (less travel, less physical transactions & deliveries); emergence of new articles of luxury to serve the vanity needs of the affluent; stronger and deeper social security programs; demise of monarchy and feudalism; popularity of spiritualism over rituals; dissipation of church & temples, etc., are all leading to sustainable decline in traditional demand and pre-eminence of gold. There is nothing to suggest that this trend may not continue in near future.

The following table makes it clear that gold and cryptocurrency are comparable assets in most respects. Some experts are arguing that gold has “intrinsic” value whereas cryptocurrencies have none. In my view, the intrinsic value of gold has developed over many centuries of wider acceptance by the state and religion. This intrinsic value has been on the decline for past few decades.

Insofar as the volatility is concerned, in past two centuries, gold has seen many bouts of wild volatility, correcting over 50% on many occasions. From December 1987 high of ~US$500/oz to February 2001 low of ~US$250, Gold yielded a negative return of 50% over a period of 13yrs. Falls of similar magnitude were rather quick during 1974-1976 and 1980-1982.

 There are lots of events happening in global markets which cannot be full explained through conventional wisdom or empirical evidence. In my view, lot of these events are unintended consequences of policy actions, geopolitics and trade conflicts.

For example, there is a massive rally in the global commodity prices, despite poor demand and growth outlook for next few years at least. The recovery to pre Covid level may not entirely explain the rise in commodity prices much beyond the 2019 levels. Popularization of electric mobility etc. can explain gains in some commodities, but not in steel, coal, crude etc.

The forecasts of a commodity super cycle sound mostly unconvincing, given (i) worsening demographics of the world; (b) restricted mobility; (c) seriously impeded purchasing power of people; (d) already stretched limits and diminishing marginal utility of fiscal and monetary stimulus; (e) technology evolution focusing on reversal of trends in labor migration; and (f) diminishing chances of a full-fledged physical war amongst large countries; etc.

Material changes technologies related to construction, manufacturing and transportation etc. also leading to material changes in the demand matrix for various commodities like steel, cement, copper, coal etc.

The outrageous rise in economic inequalities globally also mean that investment rate in poor countries will continue to decline for next many years, as the economic power gets more and more concentrated in the hands of few rich nations.

I therefore feel that the price trends in the global markets are deeply influenced by the factors other than economics. Even though the defeat of Donald Trump in US presidential elections has taken the trade conflicts away from headlines and front pages; the trade war that started few years ago is far from over. Besides, geopolitics is also playing a large role in global markets.

In past two years, China has been making conscious efforts to reduce its holdings of US Treasuries and building large reserves of physical industrial commodities. The global investors appear selling Chinese assets (leading to massive tech rout in China) and buying other emerging markets, in line with the global enterprises’ China+1 policy.

The unintended consequences are that world is facing shortages of rare earths, semi-conductors, and shipping containers and struggling with the rising prices of commodities. China which had been exporting deflation to the world for the past 10years has suddenly become exporter of inflation to the world.

The markets focusing more on US yields and USD cross rates, might be missing the point that Chinese aggression on commodities can derail the entire AI led Tech revolution for at least 4-5yrs, if it continues to choke supply of rare earths and semi-conductors. This derailment of global trade and therefore growth is a bigger worry than inflation at this point in time.

It is pertinent to note in this context that today China is hosting its annual gathering of National People’s Congress, its biggest political meeting, to approve the plan to propel Chinese economy to the top of the world, ahead of US. At the center of the new plan will be Beijing’s push to develop new technologies and cut the nation’s reliance on geopolitical rivals such as the U.S. for components like microchips. As per some experts, that should mean allocating more resources to science and technology, with spending on research and development targeted at around 3.5% of GDP over the period

Another case in point is the sharp rise in the price of sugar in global markets. This rise has occurred despite the higher than expected production in India and over 10.6MT carry over stock. But for MSP of Rs31/kg mandated by the government, the glut should have resulted in domestic prices falling to much below the cost of production. Also, but for export limitations and logistic constraints, Indian supplies could bring down the global prices to much lower levels. Visualizing this as signs of impending global food inflation cycle may not be appropriate.

The semi-conductor shortages are hurting manufacturing of white goods, electronic items and automobile, etc. This could have meaningful second round impact on other sectors of economy. Thankfully, the border conflicts and political rhetoric have not impacted the Indo-China trade materially. But India gaining advantage at the expense of China due to China+1 policy could have some repercussions in the short to medium term. The capacity building in India needs to take place now. A delay of even one year could potentially render much of this capacity redundant as global enterprises find alternatives or reconcile with China.

The short point is that US bond yields and USD exchange rate, etc. are least of the worries for our markets and economy, presently. Laying too much focus on these may only distract us from bigger threats and even bigger opportunities.

Crypto currency (e.g. Bitcoin) is proving to be the best asset class for the Covid-19 infected FY21. Most crypto currencies have yielded astronomical returns in a year that suffered the worst synchronized global recession since the great depression of 1930s. Against this, the traditional safe haven Gold, Swiss Franc (CHF), USD and US Treasuries have yielded insignificant return. USD Index (DXY) in fact has declined over 10% YTD FY21. Silver is the only traditional asset, besides equities, that has yielded strong return in past 11 months.

Regardless, the overwhelming consensus amongst global strategists appear to be favouring gold and silver as overweight in asset allocation of non-institutional investors. Most wealth managers and investment strategists are suggesting upto 15% allocation to gold (for example see here). Many globally popular and prominent traders, chartists and strategists have suggested a massive bull market in Silver in next couple of years (see here)

Meeting with a senior asset allocator last week was quite revealing in this context. The gentleman advocated 10% allocation to gold, besides 10% allocation to global equities (mostly US equities). He strongly advised to avoid crypto currencies; though he expects a rather lucrative trading opportunity in silver. On a little deeper probing, he offered the following rationale for his asset allocation strategy:

(a)   Given the status of quantitative easing (money printing) by major central banks, global hyperinflation is inevitable. It is only a matter of time when the prices of all real assets and commodities explode. In these circumstances gold will provide safety cushion to the portfolio.

(b)   Stagflationary situation in US could lead to sharp depreciation in USD value and chances of return to gold standard could enhance.

(c)    Gold-Silver ratio is breaking out on technical charts. From a 10yr high of 120, the ratio has already corrected to 60. Technically it is expected to test the 10yr low level of 30 in short term. This implies a sharp rise in silver prices.

(d)   Unwinding of monetary stimulus would also lead to unwinding of carry trade in USD and EUR. This may lead to reversal of flows away from emerging markets to developed markets. Therefore buying some developed market equity is desirable. It is also desirable from (i) diversification viewpoint and (ii) strategic viewpoint, i.e., to take stake in global businesses doing very well.

His arguments were quite convincing on first hearing. But on second thought these left me mor confused than ever. What I could not understand from his detailed presentation was:

(a)   If a hyperinflationary situation does materializes as popularly believed, won’t I have much serious problems to deal with. How 10% gold will solve these problems?

(b)   If USD and EUR get debased due to excessive money printing, INR will naturally appreciate against USD. Since gold is mostly priced in USD terms, won’t any appreciation in gold in USD terms will get neutralized by appreciation in INR vs USD.

(c)    What is the guarantee that gold does not suffer from the same malaise as USD? Is it totally improbable that the physical stock of gold has been leveraged many fold to issue paper gold?

(d)   Why can’t the targeted Gold-Silver ratio be achieved through fall in gold prices rather than rise in silver prices?

(e)    If USD and EUR do get debased, why would an alternative currency not emerge to maintain stability in global trade?

(f)    Since anticipated hyperinflation is mostly expected to be the outcome of a supply shock rather than a demand surge, a further dose of quantitative easing might be in order to encourage building of new capacities. If that is the case, then the whole premise of higher yields and hyperinflation might fail.

(g)    If USD and EUR debasement is a serious concern, then how does investing in global equities make sense?

(h)   A hyperinflationary condition may lead to material monetary tightening in India. Higher rates shall then warrant serious de-rating of equity valuations which are assuming prolonged period of lower rates and lower inflation. Even real estate may also suffer from poor demand due to higher rates in that case. We may need to worry more about INR debasement in that case rather than USD or EUR!

Many more such questions bothered me for couple of days, before I reminded me of the following basic learnings from the first chapter of my investment strategy book:

1.    India has 1.38bn people who need to eat & wear clothes, want decent healthcare, and aspire to have a decent shelter of their own. These needs and aspirations will continue to create many decent investment opportunity for me in India for next few decades at least.

2.    A tiny investor like me should never bother about diversifying the investment portfolio too much. A totally unproductive commodity like gold and mostly unknown animals like foreign equities are for large investors and traders with much stronger risk appetite. I should be happy with ordinary assets like high quality domestic equity (businesses which I can see and feel everyday); debt to my government and some large corporates; a house for myself; share in portfolio of good rental properties; and some liquid money in bank. Chasing few extra bps of returns is meaningless and fraught with risk which I can hardly afford. I cannot afford to risk even a single penny for earning few bragging rights.

3.    An information that has travelled seven seas to reach a commoner like me has no arbitrage value. If I know that USD hegemony is under threat; hyperinflation is on the anvil; silver is going to rise astronomically, then I must strongly believe that these happening will NOT shock the markets in any manner whatsoever.

 I find some of the recent analysis of US politics and its implications for financial and commodity markets, rather amusing. Most experts are presenting their prognosis of the future direction of asset prices (stocks, currencies, bonds, gold, oil, and other commodities) based on an upside down pyramid, with politicians and central banks as the primary basis of their assumptions.

The overly simplistic analysis indicates that the new US government will have to find a balance between the cost of servicing monstrous public debt (interest rates) and growth. The growth will look healthy in 2021 as the poor base effect kicks in; and so will the inflation. This shall prompt the Fed to normalize the policy rate to bring benchmark 10yr yields from present 0.95% to pre Covid level of 2.5%. This rise in yields will make the servicing of burgeoning debt extremely difficult, if not impossible. The Fed will therefore be forced to check the benchmark yields below the pre Covid levels, say at 2%. This will cause USD to tank another 10-20%, sending the prices of gold and other global commodities denominated in USD to stratosphere. Emerging markets, especially those exporting the commodities will gain significantly, at the expense of developed economies, particularly USA.

The analysis also assumes that a Democratic government in USA would work for normalizing trade relations with China, thus giving significant impetus to growth, leading to higher demand for industrial commodities.

From static empirical studies this analysis looks good. However, if we apply little accelerated rate of change to the historical economic trends, these assumptions may be lacking in many respects. For example, consider the following possibilities mostly ignored by these assumptions:

·         US Government and Fed decide to correct the fiscal and monetary indulgences of past couple of decades, by devaluation of USD and letting USD retire as global reserve currency.

·         Global commodities are no longer priced predominantly in USD. The share of neutral currencies (crypto etc.) and regional currencies (EUR, CNY, et al) increases substantially in global trade, making trade more bilateral than multilateral. (De-globalization)

·         Digital transformation leads to material rise in productivity, further adding to deflationary pressures created by aging demography of the developed world.

·         Consumption pattern change materially. The consumption of fossil fuels, steel, chemicals etc. declines structurally. (ESG)

·         The logistic constraints ease substantially and supply of commodities is restored to the pre Covid level soon.

·         Sino-US conflict is not about Trump or Republican standpoint. It is a conflict to retain (or gain) supremacy over global order. It continues to worsen with every new achievement of China. German Chancellor Merkel has led the European Union to conclude trade deal with China. This is despite Chinese aggression against neighboring countries; atrocities in Hong Kong; and suspicion over treatment of Alibaba promoter Jack Ma. Clearly, a strong anti US axis is emerging in the global order. The assumptions of high growth do not appear to be factoring the probability a sharply divided bi polar world, with few non-aligned countries.

 "It is difficult to make predictions, particularly about the future." — Mark Twain

There must have been times, not long back in human history, when making economic forecast was a straight forward process based on rational thinking. The economists could predict the demand supply equilibrium and consequent price tendencies with reasonable accuracy. The investors and traders could use these forecasts to make a strategy best suited to the likely economic trends. The governments (and later central banks) could rely on these forecasts and design their monetary policy and fiscal response. If that were not to be the case, economics would not have got recognition as scientific discipline of study.

However, by observing historical trends in correlation between the economic forecasts and investors’/traders’ behavior and policy response to the forecast, I find that investors, traders and policy makers have seldom taken these forecasts seriously. In fact, the developed economies, with access to a large pool of qualified, trained, and experienced economists, appear to have faced far more serious economic (and market) debacles, than the poor third world economies in 19^th and 20^th century.

In past couple of decades, I find that the function of making economic forecast has become very complex, and to large extent speculative. Some of the reasons for this could be listed as follows:

·         The dematerialization of money, assets, labor, commodities and trade has completely changed the traditional demand-supply dynamics. Both the demand and supply of money, assets, commodities and labor is now significantly more sensitive to global conditions. The imbalances in demand-supply equilibrium could be bridged much faster. Similarly, the demand-supply gap can widen at much faster pace.

·         Globalization of trade & commerce has made the markets worldwide. Events like weather conditions, natural disasters, epidemics, etc. which traditionally impacted the demand supply equilibrium for many months, and sometimes years, no longer necessarily have a durable impact on local economy. The supply gaps could now be filled much faster through import of money, labor and commodities.

·         Internet has made the access to information easier, faster and cheaper. The market participants find it imperative to act on the streaming information with lightning speed, to take the first mover advantage. They have almost no time to verify the authenticity and repercussion of the information before acting on it. This adds material degree of speculation to the behavior of policy makers and market participants. This also makes it easy for the unscrupulous (smart in common market parlance) elements to manipulate the market and policy trends.

·         It has been seen that the policy response to economic data is mostly driven by considerations of political expediency and financial market buoyancy. Post dotcom bubble, as the digital economy has progressed at tremendous speed, the socio-economic inequalities have also increased at equivalent speed. The task of political establishment has therefore become easier.

Politicians have to keep the financial markets buoyant to placate the few rich; and keep subsidizing the majority poor to preserve their political constituency. High fiscal deficits and low to negative real rates are the two tools used almost universally by the governments across the world. Low rates (i) help the government to borrow cheap for profligate fiscal policies (more subsidies); and (ii) let the large corporates grow faster at the expense of poor saver. Obviously, this strategy does not agree with the traditional economic theory. There is nothing to indicate that the governments which are enjoying support of both rich and the poor with brilliant ease would not want the things to change.

·         Significant part of the global economy is now turning digital. The trend is prominently visible even in many developing countries. With this material changes are occurring in the consumption patterns and trading practices. The incremental income is now mostly spent on services (communication, travel, entertainment, etc.) even in lower middle class households. The correlation between higher income/liquidity and commodity inflation is weakening.

As a matter of routine practice, a myriad of experts have made predictions about the best trades for the year 2021. A weak USD, commodity inflation, industrial recovery, emerging markets are some of the overwhelming consensus trades.

In my view, the investors and traders must analyze the situation critically before agreeing with any of these trades. Personally, I am not too inclined towards “weaker USD” and “commodity inflation” trade.

 The two thousand twentieth year of Christ is coming to an end. This year has been totally forgettable and remarkably transforming at the same time. It reminds me of the title of the autobiography of legendry poet Dr. Harivansh Rai Bachachan – “क्या भूलूँ, क्या याद करूँ”.

Notwithstanding the all-time high levels of stock market indices in most countries; the global financial system inundated with trillions of dollars in free liquidity; over US$20trn worth of bonds yielding negative return globally; the massive economic and social shock of Covid-19 pandemic has left billions of people in distress. The inequalities of income, wealth and opportunities have risen to new highs.

Significant developments have been reported on the front of vaccine development to check the spread of Covid-19 virus. Many countries have already authorized emergency use of some vaccines; and people are being administered such authorized vaccines. Nonetheless, recently a fresh wave of mutated version of Covid-19 virus has been reported from some places in Europe (especially UK), resulting in fresh set of mobility restrictions. This indicates towards the possibility that the world may not return to total normalcy in many months to come. As per various estimates, it will take 15-18months to inoculate a sizeable population to reach a stage of herd immunity against the Covid-19 virus.

On the positive side, the pandemic has accelerated many trends that may help the cause of sustainable faster development in the medium to long term.

There have been many events in 2020 that must be taken note of by the investors. However, as a tine investor in Indian assets, I would in particular like to remember the following eight for next many years.

1.    The Indian government imposed a total socio-economic lockdown in the country in the wake of the outbreak of pandemic from 25^th March 2020. The restrictions were relaxed gradually from June onward.

In my view, it is almost impossible to assess the utility and true impact of lockdown exercise. We would never know, what could have been the situation if a total lockdown was not imposed in March. It could have been worse in terms of economic and health shocks; or perhaps the economic loss could have been less pronounced, sans total lock down.

This episode however has further strengthened my already strong view that the incumbent government is unpredictable. It can take decisions having far reaching repercussions rather quickly; without adequate planning; and without bothering about the immediate consequences in terms of human suffering. I shall continue to incorporate this feature in my investment strategy for midterm.

2.    During the lockdown, when the human activities and mobility were restricted to a great deal globally, the nature attempted to reclaim its space. The instances of peacock dancing on city streets, deer, sheep and even lions roaming freely on public roads, air quality improving to “serene” from “severe”; visibility improving to few hundred kilometers from few meters; children learning that the color of sky is “azure” and not “pigeon blue”. However, within 15 days of unlocking, the human reclaimed the entire territory from the nature.

Notwithstanding the enthusiasm behind sharing pictures of “pure nature” on social media, it is clear that we have moved too far on the path of self-destruction.

On the other hand, “work from home” and “digital meetings” have been adopted as fait accompli by many businesses. This because it brings immediate tangible benefits to both, the employer and the employee.

This leads me to conclude that any global agreement on climate will not succeed unless it has immediate and tangible economic payoff for the parties. The Paris accord, fails on this test, just like the Kyoto protocol. I shall therefore not be looking for investment opportunities in Paris accord, unless I see tangible economic gains for Indian businesses and consumers.

3.    On 20^th April 2020, something happened in global commodities market, which was unheard of. The WTI Crude Oil Future in New York crashed to a negative US$37.63 price. This event, though rare, has added a new dimension to the risk management process; option pricing methods; and trading strategies.

4.    The benchmark crypto currency “Bitcoin” has been vogue since 2009. Even though it was accepted as a medium of exchange in many jurisdictions, it never gained wider acceptance as legitimate asset like gold or store of value like currency. In 2020, most of the reputable global investors and strategists have accepted Bitcoin as futuristic “store of value”, just like gold and USD. This acceptance has come on the back of Bitcoin’s sharp outperformance vs precious metals and USD. I believe that this marks the beginning of a new era on global monetary system. Neutral digital currencies shall continue to gain prominence in global monetary system in future. May be this prominence would diminish the dominance popularity of gold and USD as global reserve currencies.

5.    The year saw a brilliant thaw between the traditional enemies the Arabs and the Israelis. Some strategic initiatives were taken by Israel, UAE and Saudi governments to reduce tension in the region. This also saw Arabs increasing distance from Pakistan. I see this as a good omen. It may result in sustainable reduction in terror support and funding globally. However, this has pushed Pakistan closer to China. The tension at Indian northern, western and eastern borders may sustain and even increase in short term. More frequent hostilities at borders  is something we would need to incorporate in our investment strategies.

6.    Reliance Industries, led by Mr. Mukesh Ambani managed to convince global business leaders like Facebook and Amazon, and investors like KKR, Carlyle, GIC, ADIA etc to invest in its digital and retail ventures. Global petroleum majors British Petroleum and Aramco have also committed large investments in fuel business of the company. If these investments are consummated successfully in next 2-3years, we shall see many large Indian businesses gaining attention of the global business leaders and investors. I shall be reevaluating some of the large, viable but heavily indebted businesses from this viewpoint.

7.    First protests against the Citizenship Amendment Act (CAA and Shaheen Bagh) and now protests against the three acts to reform the farm sector in the country have further strengthened my belief that the mistrust between the ruling BJP and opposition parties has breached the red line. The political environment shall get further vicious, once the BJP tries to conquer the Forts of East (West Bengal and Odisha) next year. I shall not be expecting political consensus on any issue for next few years, for my investment strategy. Although with Congress weakening further, getting majority votes in Rajya Sabha may not be an issue for the government, nonetheless, the threat of reversal of contentious legislative changes shall always prevail, should a united opposition manage to dethrone BJP in 2024. (I agree that as of this morning this looks almost improbable).

8.    India recorded its first recession in past four decades in 2020. Though many analysts are terming it a technical recession due to lockdown; I would like to wait and see the trajectory of recovery to conclude if a lasting damage has been caused to the growth prospects.

 In a recent note, Matthew Hombach, Chief Rates Strategist of Morgan Stanley, wrote that Central Banks will inject another $2.8trn of liquidity in the global financial system in 2021. This would be the double the amount of highest liquidity injection in any year prior to 2020. This abundant liquidity, in Matthew’s view, will support the riskier investments at the expense of investments entailing lesser risk; implying weaker USD and US Treasuries and Stronger EM currencies and Equities. The caveat however is “if central banks signal a reduction in liquidity earlier than we expect, or our economists’ buoyant expectations aren’t met, risky assets could experience a wobble, a theme that might very well feature in our 2021 mid-year outlook”.

The conventional theory is that as the supply of transactional currency (money) rises, the price of money (interest rate) decreases. The lower interest rate results in lower cost of owning and carrying assets resulting in higher demand, and therefore higher price, for assets. Lower cost of money is also traditionally believed to increase the risk taking ability of the borrowers, resulting in higher demand for riskier assets, e.g., equities (over debt), emerging market assets (over developed market assets) etc. Lower cost of money is also seen to be catalyzing the flow of savings (surplus liquidity) from low yielding assets (e.g., USD, JPY, developed countries’ bonds etc.) to high yielding assets (e.g., emerging market currencies & bonds).

Also, as per conventional theory, the rise in supply of money which is not matched by rise in production of goods and services, inevitably results in rise in prices of goods and services (inflation).

However, the market trend seems to have strongly defied these conventional theories in past 10 years. Ever since the global central banks adopted the new normal monetary policies of abundant liquidity and near zero to negative interest rates, the demand and prices for developed market assets (USD, Developed market bonds and equities etc) have mostly outperformed the emerging markets and the prices of physical commodities have remained low, notwithstanding the small bump in recent months.

I think, the investment strategy needs to assimilate the trends in monetary policy, asset prices and inflation (of goods and services) in a holistic manner rather than drawing conclusion from the bits and pieces. The economic and financial research may better focus on the issue whether—

(a)   The excess (or additional) money printed in since the internet revolution started in late 1990s is to adjust the stock of money for rise in productivity, dematerialization, colossal rise in income and wealth inequalities and consequent changes in consumption, trading and investment patterns, changes in velocity of money etc.; or

(b)   The conventional theories are still valid and we are just protracting the inevitable, i.e., hyperinflation in prices of goods and service