Money printing is not generating a lot of growth - Maurice Info
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ISSN 1694-318X
www.pluriconseil.com Bilingual Journal of PluriConseil
Numéro 109 : Janvier-Février 2021
"Tout l’art de la politique est de se servir des conjonctures.” Louis XIV
Money printing is not generating a lot of growth
By Sameer Sharma
As we look forward to 2021 and to the prospect of vaccines allowing us to get our lives back in
order, from an economic standpoint at least, the world economy has recovered well and the
COVID impact is looking shallower than what was initially thought. When applying non-linear
machine learning ensemble models to a combination of both higher frequency economic data and
alternative economic data across regions as showcased in Figure 1, global economic activity has
largely recovered mainly led by East Asia and the United States. While a mild dip is likely during
the first quarter of 2021 given the partial curfews and partial lock-downs in some regions, global
economic growth is on pace to exceed 5% next year and has already mostly recovered to
previous levels of economic activity.
PAGE 5
Does velocity of money explain
growth and inflation?
By Eric Ng Ping Cheun
PAGE 8
The debt economy trap
By Mubarak Sooltangos
PAGE 12
Cette île doit être secouée
Par Amit Bakhirta
PAGE 15
Central bank digital currencies
and the war on cash
As global economic slack slowly begins to recede in By Kristoffer Mousten Hansen
the context of ultra loose monetary policies and PAGE 18
given the recovery, global inflation indicators have La portée du méga traité de
begun to rise. A simple de-noising of various
forward-looking market pricing of inflation in the
libre-échange asiatique
Par Riley Walters
United States and in Europe indicates that inflation
risks are once again rising. While global inflation is
likely to be at least 1% to 1.5% higher over the coming five years when compared to the previous
5-year average, shorter term inflation risks should not be dismissed especially as we head closer
to 2022.
The post COVID world (if the vaccines work as advertised and are distributed efficiently) will be
one where previous secular trends such as digitalization (e-commerce, Artificial Intelligence,
robots), inequality, de-globalization, US-China tensions and a focus on economic sustainability
(think ESG) will accelerate. This will be a tougher world where offshore tax jurisdictions will
increasingly be targeted by the usual tax authorities and where those who compete and innovate
will succeed while the rest will not find it as easy as before. When we think about Mauritius, the
solutions for the necessary transformational structural reforms are many and overdue, but the
An electronic journal published by PluriConseil Ltd
Director: Eric Ng Ping Cheun
Address: 38, Aldrin Street, Pointe aux Sables, 11128, Mauritius
Tel: +230 289 6719 Fax: +230 234 2761 Email: pluriconseil@intnet.mu
political willingness to engage in such reforms is sadly lacking because of what this could do to
the system that got politicians elected in the first place.
Figure 1: Index of Economic Activity Figure 2: Estimated Global Index of Forward
Looking Market Pricing of Inflation
Sources: Bloomberg, World Bank Open Data and
Various Open Source Indicators - Author
estimates (PCA + XGBoost Regressor) Data from Bloomberg and Author Estimates
The system of patronage will not take this economy to the next level
Before Mauritius can engage in meaningful structural reforms, it must decentralise economic
policy making away from the office of the Prime Minister, and it must revive technocracy and
chose meritocracy over loyalty and idol worship of the Prime Minister. To be fair, the system has
always been this way because the political system was designed that way at varying degrees, but
this system of nominating loyalists irrespective of competence (and more often than not
irrespective of relevant experience in the field prior to the nomination) who are then more than
happy to worship and allow their institutions to be remote controlled from elsewhere has not and
will not work any more.
Slogans that Mauritius was a “high-income
economy” may work with too many on the island, You need smart people who can
but whether you look at the quality of human take decisions rather than waiting
capital, the lack of productivity and innovation, on orders from elsewhere.
the depth of the capital markets, the dependence
on financial flows and tourist receipts which
helped keep skeletons under the carpet, rising debt, subdued private investment especially when
excluding bricks and mortar related investments, an increasingly unsustainable tax system given
the rising cost of the welfare state, demographic trends and stagnating pre-COVID economic
growth, the true picture is much more complicated.
Sure, the system of patronage may win elections but it will not take this economy to the next
level. You need independent and competent technocrats in key institutions of this country who act
independently but are accountable. You need smart people who can take decisions rather than
waiting on orders from elsewhere. Mauritians of course also get the system and the politicians
they deserve. Politicians love to be worshipped as demigods on the tiny island nation, but too
many like to engage in the worshipping too.
In a country where alternative job opportunities are few and living costs are ever rising, many will
play the “dance to the tune of the powers of the day” game and pick up the nominations even if
they are not qualified for the post. Many of us who have attended parties where recently elected
politicians suddenly get invited and become the canter of attention will laugh about it to some
others, but all of this tamasa is why Mauritius will struggle in the years to come. The notion that a
potential nominee would say “thank you but I have to refuse because this is not my field and I am
not qualified for this role” does not really exist in Mauritius.
Numéro 109 : Janvier-Février 2021 Page |2Over the past 40 years, all of us who live or have lived and worked in Mauritius have been
tempted to go on the “if we cannot beat them, let us join them” route and too many have done so.
Those who do not play such games typically stagnate or leave the country. Mauritius is a small
country with a small reservoir of competent technocrats, and the more it closes the inner circle of
those who make decisions, the worse it will be and has been.
A lot can be said about some in the private
sector too of course. This notion that we need
The rising number of Zombie diversified Jack of all trades but Master in none
companies post-COVID will have businesses despite poor free cash flow levels
longer term implications on and ROCE (Return on Capital Employed)
private sector investments, job versus WACC (Weighted Average Cost of
creation and potential output. Capital) metrics, the over-reliance on debt
rather than on optimal debt and equity funding
mix (long periods of excess liquidity in the
system distort credit risk pricing and behaviour), a passive shareholder base, the lack of
competitiveness, insular thinking by some captains, “quand la construction va, tout va” approach
and a saturated and small market are all factors which explain why the government has had to
step in with massive debt and grant funded public investments which have not always had strong
multiplier effects on the economy pre-COVID. Right now the Bank of Mauritius has provided
regulatory forbearance which has pushed the credit risk can down the road a bit further, but the
rising number of Zombie companies post-COVID will have longer term implications on private
sector investments, job creation and potential output. You can play with rules and make things
look better than they are on paper, but reality bites on all the same.
The benefit of printing money is fast eroding
Whatever I have said so far can be seen in the data too. Mauritius is already lagging. The Bank of
Mauritius is printing large sums of money, but the pre-COVID structural ills, the black listing and
the closed borders means that all this printing is having little effect so far. I supported and pushed
for unconventional monetary policies way back in February 2020 and still do but mainly when it is
driven towards the credit channel (not like what is being done with the Mauritius Investment
Corporation of course – a good idea gone bad by not having the right people at the right places
as usual) and more importantly when it is associated with clear policy guardrails.
Very few in Mauritius understand how complicated it will be for the central bank to efficiently
manage its balance sheet and be a credible inflation fighter in the coming years. The asset
liability management of its balance sheet in any rising inflation scenario would require an
amendment to the Bank of Mauritius Act in order to allow the central bank to go into negative
equity territory so that it can credibly focus on fighting inflation. Those who think otherwise have
simply not done the math.
Figure 3: Tax Revenues are not stagnating Figure 4: Revenues have a long way to go
Source: Statistics Mauritius, Author’s Calculations
Source: Company Quarterly Financials
Numéro 109 : Janvier-Février 2021 Page |3Mauritius, unlike the rest of the world as can be seen in Figure 3, is still struggling. Tax revenues
give us a good sense of what is happening to corporates and to the consumers, and this metric is
quite correlated to local growth. It is not rising!
The two largest conglomerates, namely IBL and CIEL, are diversified across multiple sectors of
the economy, and their quarterly revenue trends also offer us some insights about the pace of
any economic recovery as showcased in Figure 4 (note that GDP numbers in Mauritius lag and
are still stuck at second quarter of 2020 – you can all guess why it takes us longer than the rest).
With tourism earnings not expected to recover in December 2020 and with a weakened Mauritian
consumer (as showcased by tax revenues), one should not expect any meaningful recovery in
those topline numbers soon. More generally, the Mauritian stock market is in the last decile of the
worst performing stock markets in the world in 2020. The graph of the local market (Figure 5)
reflects the state of challenged corporate balance sheets and revenue declines and seems to be
one more higher frequency indicator which points to the still MIA recovery. The stock market is
certainly an imperfect indicator but it is well aligned to other indicators too (in a country where
sadly high frequency data is still not plentiful in 2020 given the politics around it).
Figure 5: A tough year for local equity Figure 6: More money is not creating more
investors units of output
Source: Bloomberg
Author’s calculations
From Figure 6, we can see that the velocity of money (the same trend is observed if you use base
money versus M3) decline has accelerated in recent quarters. We can print but it is not
generating a lot of growth because of our structural ills pre-COVID, the blacklist and the closed
borders. The only positive from this picture is that given low global inflation over the past decade
(imported inflation pressure was low), high growth in both base money and M3 did not lead to
higher domestic sourced inflationary pressures since the economy tended to operate below
capacity/potential. The significant slack still found in the Mauritian economy today means that
shorter term domestic sources of inflationary pressure are unlikely to play the spoil sport despite
all the money printing, but if we start getting more inflation from abroad or even if we begin to get
a more meaningful recovery after the opening of borders in the coming 2 to 3 years, then the
chart below will put the Bank of Mauritius in quite the conundrum.
A country can print all the money it wants for a time but if it cannot increase its capacity to
produce more goods and services with it, then it will turn against the country. How long can
Mauritius keep on printing money, pretend that it has near zero fiscal deficits given monetization
and not see growth pick up? It has been six months since Mauritius emerged from a successful
lock-down, and Figure 1 has shown that the world is already moving on, but it does not yet seem
clear to this author at least that policy makers have engaged in meaningful introspection about
why their policies are not working as the benefit of printing money is fast eroding.
Sameer Sharma is a chartered alternative investment analyst and a certified financial risk manager.
Numéro 109 : Janvier-Février 2021 Page |4Does velocity of money explain growth and inflation?
By Eric Ng Ping Cheun
Policymakers, in Mauritius as elsewhere,
have been pumping money into the
economy in a bid to mitigate the disastrous
impact of the Covid-19, let alone to restore
economic growth. Such a policy is based on
the monetarist assumption that more money
always leads to more spending. Still,
Mauritius’ real gross domestic product
(GDP) would contract by 7.0% in the fiscal
year 2020-2021, would rebound moderately
by 4.5% in 2021-2022 and would be back to
pre-pandemic level only in 2022-2023,
according to projections made in the national
budget.
Money and GDP
Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20
Gross Domestic Product (GDP) 400,565 422,084 446,401 469,744 490,557 457,863
(Rs million)
Year-on-Year Inflation (%) 0.4 1.1 6.4 1.0 0.6 1.7
End of month (Rs million)
Currency with Public 24,018 26,254 28,460 29,088 30,056 36,133
Monetary Base 71,594 70,420 80,702 109,049 105,730 148,347
Broad Money Liabilities (BML) 418,402 454,966 491,497 537,638 571,821 644,330
Monthly Average for year
ended (Rs million)
Currency with Public 23,350 25,760 27,804 29,563 29,698 33,340
Monetary Base 68,506 70,691 77,763 93,861 103,453 121,899
Broad Money Liabilities (BML) 397,079 437,190 476,601 518,398 552,770 605,520
Monetary Ratios
Velocity of Money Supply 1.01 0.97 0.94 0.91 0.89 0.76
(GDP/BML)
Velocity of Currency with Public 17.15 16.39 16.06 15.89 16.52 13.73
(GDP/Currency)
Average Broad Money Multiplier 5.80 6.18 6.13 5.52 5.34 4.97
(BML/Monetary Base)
BML to GDP 0.991 1.036 1.068 1.104 1.127 1.322
Currency with Public to GDP 0.058 0.061 0.062 0.063 0.061 0.073
(Sources: Bank of Mauritius & Statistics Mauritius)
Numéro 109 : Janvier-Février 2021 Page |5For policymakers, interest rates are an instrument of intervention in the economy, but central
banks cannot just change the policy interest rate: they must also manage the monetary base
(also known as high-powered money, reserve money or central bank money), which includes the
currency circulating in the public, the currency physically held in the vaults of commercial banks
and the reserves of banks held at the central bank. In Mauritius, the monetary base more than
doubled from Rs 71.6 billion end-June 2015 to Rs 148.3 billion end-June 2020. Yet, this drastic
increase led to a relatively subdued price inflation (an average year-on-year inflation of 2.2% in
that period) and to a mild economic growth (from +3.9% in 2015-2016 to -6.3% in 2019-2020).
Similarly, broad money liabilities (BML), which comprise cash, deposits and debt securities,
jumped by a hefty 54% while nominal GDP rose by only 14%. Two reasons can explain why
national output grows much slower than money supply: the commercial banking sector transforms
only a part of the base money into money in circulation (maybe because of increased risk
aversion), hence a drop in the average broad money multiplier (BML/monetary base); and holders
of money, both physical and digital, reduce their frequency of transaction – what economists call
the velocity of circulation of money.
Velocity plummets when businesses and consumers spend less and hold their money assets for
a longer period of time. A fall in velocity may defeat the purpose of stimulus measures (which
push up the money supply) whereas its increase may raise expectations about future price
inflation. Now the question remains whether the speed with which money moves is a reliable
indicator of economic activity.
The equation of exchange
The idea of velocity is that the money a person spends for goods and services is used later by the
recipient of that money to purchase other goods and services. For example, a 100-rupee note is
used during a year as follows: a shoemaker pays the 100-rupees to a tomato farmer. The latter
uses the 100-rupee note to buy juice from a shopkeeper who uses the money to purchase bread
from a baker. The 100-rupees has thus served in three transactions: the velocity is 3. A 100-
rupee note circulating with a velocity of 3 finances 300 rupees worth of transactions.
Overall, the money stock is boosted by means of a velocity factor to establish the value of
transactions in an economy in a particular year:
Money supply (M) x Velocity (V) = Value of transactions
Value of transactions = Average prices (P) x Volume of transactions (T)
This gives the famous equation of exchange set out by Irving Fisher in 1911:
MV = PT.
Since T is a measure of the real GDP, it follows that money times velocity equals nominal GDP:
MV = GDP.
If velocity is assumed to be stable, then for a given stock of money, the nominal value of GDP
can be determined. Central banks track velocity (GDP/M) for several definitions of money, but the
Bank of Mauritius seems to focus on broad money liabilities. The velocity of BML dipped below
one in 2015-2016, which means that the average rupee was exchanged less than once in that
year. From 1.01 in 2014-2015, it trended lower to 0.76 in 2019-2020, despite aggressive cuts in
the Key Repo Rate. For currency with public, the velocity also tumbled, from 17.15 to 13.73,
reflecting to some extent the use of cash during the lockdown.
The decline in velocity is a matter of concern for those who, from the equation of exchange, view
money together with velocity as a source of funding: for a given stock of money, an increase in
Numéro 109 : Janvier-Février 2021 Page |6velocity helps finance a greater value of transactions than money can do by itself. In fact, neither
money nor velocity has anything to do with financing transactions.
Consider a shoemaker who sells a pair of shoes to a tomato farmer for Rs 100, and then
exchanges the Rs 100 to buy juice from a shopkeeper. How does the shoemaker pay the juice?
He has financed the purchase of juice not with money but with the shoes he produced. He has
used money to facilitate the exchange: money fulfils
The value of money originates here the role of the medium of exchange. The
number of times the unit of money (the rupee)
from humans’ subjective
changes hands (the velocity of circulation) does not
desire to maintain certain bear on the capacity of the shoemaker to fund his
cash balances. purchase of juice: shoes have been exchanged for
juice by means of money.
Money velocity does not have a life of its own. It is not an independent variable and therefore
cannot cause anything. Velocity is just PT/M and is dependent on the other terms to maintain the
balance of the equation of exchange. This mechanistic equation is not a truism but merely
represents a tautology: that the income and expenditure involved in all transactions must be
equal.
Demand for money
A crucial defect of the velocity concept is that it is an aggregate average that looks at the whole
economic system – a holistic concept that disregards the actions of individuals. From an
individual point of view, prices are determined in every transaction, each time money changes
hands, so an “average velocity of circulation” does not make sense. Moreover, while a “general
price level” can be considered at a certain point in time, it is absurd to measure prices over a time
period as goods and services vary in quantity and quality in time and space.
Everyone needs to keep an amount of ready cash on hand: this desire creates the demand for
money, i.e., the demand for cash holding. Changes in the purchasing power of the monetary unit
are brought about by changes arising in the relation between the demand for money and the
quantity of money available (money supply). The value of money originates from humans’
subjective desire to maintain certain cash balances.
No one ever has cash holdings more than he wants. If he thinks that his cash holdings are
excessive, he will invest the excess in buying goods and services or in lending it through bank
deposits, shares or securities. Cash holdings are not idle money (hoarding), but they render the
service of being ready for any future use. While money changes hands, it is always in someone’s
possession, in the cash balance of an economic agent.
In a weakening economy, people normally wish to
increase their cash holdings instead of spending their As soon as the
money. Recessions, let alone anxiety or uncertainty about pandemic ends,
the economy, tend to dampen the velocity of money by Mauritians will not go
making money as a store of value more attractive than on a spending spree
alternative investments. Since the Mauritian economy had
contracted during the first two quarters of 2020, it would
because the economy
be interesting to know whether domestic saving will recover only slowly.
subsequently shot up.
In any case, households are not flush with cash, and there is currently no glut of savings. As soon
as the pandemic ends, Mauritians will not go on a spending spree because the economy will
recover only slowly. Nevertheless, consumer demand may rebound, more money will change
hands, and this will contribute to the rise in inflation which has already started following the
monetary stimulus.
Numéro 109 : Janvier-Février 2021 Page |7Money unevenly distributed
For sure, the expansion of money supply has not raised the general price level as proportionally
as monetarists would have us believe. This is because the velocity of circulation has not been
relatively constant over time, and the GDP has not approximated that of full employment (output
gap). It remains that inflation is a monetary phenomenon which, however, does not affect
uniformly all sectors and so disrupts the productive structure.
When more money is injected into the economy, an excess of spending over production results.
When spending grows faster than production, price inflation happens. The latter may also arise
without an expansion in money supply if the volume of goods shrinks (supply shock).
Variations in the quantity of money have also microeconomic effects on relative prices – effects
concealed by the equation of exchange – besides the fact that new money enters the economic
system at specific points (via public expenditure or credit creation) and at different moments (in a
sequential manner), favouring certain economic agents to the detriment of the rest. Thus begins a
process of income redistribution in which the first to receive the newly-created monetary units can
purchase goods at prices not yet affected by monetary growth, at the expense of late receivers
who find themselves buying goods at rising prices. Money unevenly distributed not only widens
income inequality but also distorts the structure of relative prices: money is not neutral.
Some economists make a distinction between cost-push inflation, of which exchange rates are a
key determinant, and demand-pull inflation. Actually the two types of inflation are two sides of the
same coin as, at the end of the day, it is effective demand that counts. That said, one cannot fully
understand inflation with the velocity of money. The process by which money comes into the
economy, the credit policy of the commercial banks, the central bank’s management of the
monetary base, the rates of change of the money supply and the discrepancy between demand
and supply of goods and services are all major factors of inflation.
Eric Ng Ping Cheun is the author of Fifty Economic Steps (2018), on sale at Bookcourt, Editions Le
Printemps, Editions de l’Océan Indien, Librairie Le Cygne and Librairie Petrusmok.
The debt economy trap
By Mubarak Sooltangos
The world is holding its breath. Have we found the
panacea that will defeat COVID-19? If we think that
vaccination will harness COVID-19 to manageable levels
or even eradicate it, enough damage has already been
done to national and world economies to rock the world’s
finances. We are probably at the start of an immense
financial crisis, the magnitude of which the world has
never seen.
The reason for this, setting aside the pandemic, is a
phenomenon, rather an evil called “debt-based economy”.
Everybody in this world is living on debt, from households
to companies and countries. Families cannot envisage
buying anything, from household appliances to furniture and cars on a cash basis, with savings
made over time. Companies live on the minimum possible shareholders’ funds and their worth is
constantly being measured by their debt: equity ratio rather than their profit generating potential.
Countries have tied the hands of their citizens and their children for decades to come by
borrowing intensively for investment in public infrastructure often not needed. Let us not talk of
borrowing to buy weapons, from huge credit providers where dirty money reigns supreme.
Numéro 109 : Janvier-Février 2021 Page |8All this denatured scenario has one name: easy credit obtained from third parties via banks and
debenture issues because the ultimate lenders earn interest on their loans. If not, nobody would
have lent money and holders of capital would have invested their money in equity-based
development projects, and we would have protected the world from the doom scenario we are in.
Borrowing on interest is essentially a speculative move, with the hope of earning sufficient profits
in a future full of uncertainty to service interest bearing loans, whose demands are very much
certain and already set in concrete in advance.
If most countries and corporates cannot survive financially a four-month lock down, cash flow
wise, this gives an idea of the magnitude of the debts which they carry on their shoulders to be to
this point crippled. We are all witnessing live the vulnerability of debt-based economy.
The magnitude of the debt economy in figures
• Economists all over the world talk about the necessity of containing national debt because its
repayment is tantamount to a tax on future generations. The International Monetary Fund and
the World Bank have fixed a reasonable maximum indebtedness of 65% of GDP in their
financial reform programmes for distressed countries. At the same time, total world’s debt
stands at USD 253 trillion against a world GDP of USD 79 trillion, and the debt is as high as
320% of GDP. Finally, every country seems to be outside IMF and World Bank’s
recommendations.
• The most indebted country in the world is America, with an explicit debt of USD 24 trillion,
i.e., 115% of its GDP. Explicit debt means all debts accounted for in national accounts. To
this, must be added its implicit debt (unaccounted for), namely financial promises, pensions
yet to be disbursed and obligations for medical insurance to be paid at a future date, which
makes a total of USD 103 trillion. Implicit and explicit debt together make a staggering USD
127 trillion, i.e. 570% of its GDP. As a comparison, America’s explicit debt after World War
Two was 120% of its GDP.
• As compared to America, China’s debt is 57% of its GDP and Russia, a surprising 18 %. This
makes us think twice before we swallow the oft repeated rhetoric that America is the most
powerful country in the world. It depends on what benchmarks we are using. GDP in dollars
and being the biggest economy in the world are not a measure of power because it depends
on what this GDP and wealth creation is built.
• National debt per capita is USD 60,000 in America, USD 1,400 in China and USD 3,700 in
Russia. Russia has the ninth lowest debt per capita in the world.
• Total explicit debt in America is USD 24 trillion, China USD 5 trillion and Russia USD 468
billion.
• GDP in America is USD 22 trillion, China USD 11,3 trillion and Russia USD 1.1 trillion.
• Expressed as a percentage of world GDP, America’s GDP is 27% and China 14.3%.
Some facts about the US Dollar
! America controls 18% of world trade but the proportion of the total world’s trade flux
conducted in US dollars is 57% (Euro 30% and GBP 5.5%). The amount of non-trade flux, in
the form of speculative, hot money is unrecorded, but may represent 25% of all US dollar
movements. This makes the US dollar by far, at over 80%, the most traded currency in the
world.
! 80% of the world’s energy transactions, mainly oil, is traded in US dollars, while America
exports only 2% of the world’s oil requirements.
Numéro 109 : Janvier-Février 2021 Page |9! Total foreign currency reserves of all countries in the world amount to the equivalent of USD
12 trillion, and 61 % of these reserves are in US dollars, i.e. USD 7.3 trillion. Hence, America
has a further debt of USD 7.3 trillion on its Treasury owed to other countries, and not
expressed in its national accounts. 20% of the world’s Central Bank reserves are in Euros, on
a decreasing trend since 2010 and 2.2% in Renminbi. Assuredly, the wisest
financial/monetary decision made by an American President is that of Richard Nixon, namely
stopping the convertibility of the US Dollar into gold in 1971, otherwise the equivalent of USD
7.3 trillion of America’s gold would, as of today, be the property of foreign countries, if ever it
does possess this amount of gold.
! Under the present circumstances, there is nothing that America can do, by buying or selling
its own currency, to influence the exchange rate of the dollar if it so wishes. The majority
chunk of US dollar exchanges is done by other countries. If the Federal Reserve decides to
use the other monetary policy tool, namely the interest rate, to raise the value of the dollar, it
would be the first loser. Being given that the national debt of America stands at USD 24
trillion, if the Fed hiked up its interest rate by one percentage point, this would cost the
American treasury USD 240 billion of additional interest payment per year.
Who are in the forefront to defend the US dollar?
Finally, the defence of the dollar lies in the hands of foreign central banks, and not the American
Federal Reserve. Any fall in the US dollar would pull downwards the value of the world’s
reserves, kept in dollars. This is an enigma for all economists to solve. The most powerful country
in the world and the first economy in size is the biggest debtor in the world, and it has no handle
on its own currency. Its economic fundamentals have no monetary significance, and it cannot
have a monetary policy of its own. It relies on the quantum of transactions conducted in the world
by other countries in dollars to keep its currency high, because the lower this quantum is, the
lower will be the dollar in value.
Additionally, and cynically, other countries as well want the US
The root cause of dollar to be high, because their national reserves are in
dollars. The dollar is perpetually kept high in China because its
our indebtedness is
central bank always buys the excess of its balance of trade
the financing of new generated by its exporting companies in dollars at a premium,
electoral promises. so as to keep demand for the dollar high. This suits China
admirably because in releasing more renminbi’s via this dollar
purchase on its domestic market than is necessary, it keeps its own currency plethoric and low to
favour its exports. The danger that this excess liquidity fuels inflation is kept at bay by quantitative
anti-inflation measures. If tomorrow another commercial and financial giant decides to embark on
a financial war with America, it has to find other means than destroying the US dollar, because it
has become the backbone of the world’s foreign trade and the lion’s share of all reserves of all
central banks in the world.
What is the nature of America’s debt?
The reason for all this American indebtedness is that its debt is in its own currency and there is
no urgency to repay them via a conversion in other currencies. The bulk of the Treasury bonds
issued by America to finance its budget deficit each year is bought by foreign central banks, and
since these bonds are in dollars, it is as if America will never repay them back, and will keep on
issuing new Treasury bonds to repay old ones as they come to maturity. The only thing that can
spell doom for America is if its creditors convert their dollars in other currencies. But if America
cannot by itself keep its dollar strong, because it cannot have a monetary policy of its own, it
deals violently with all countries which try to make a move to conduct their trade in other
currencies and to get rid of the hegemony of the dollar. Ghaddafi has paid with his life his
“impropriety” of trying to establish his “Gold Dinar”, backed by Libyan gold reserves, as a new
monetary standard to finance trade within the African continent. We can bet that any country
trying to convert its dollar reserves into other currencies will meet the same fate as Libya.
Numéro 109 : Janvier-Février 2021 P a g e | 10Why is America constantly at war?
This is the law of the financially weakest but militarily the strongest, made possible by easy
money being available because of the interest factor, a deadly evil at its core. Besides this,
America has to be perpetually at war to satisfy its demands of all sorts on other countries, and
these demands are so outrageous that they cannot be discussed around a negotiation table. As
an example, cheap Middle East oil prices would place American industries at a disadvantage with
regard to China, Japan, India, South Korea and Malaysia, who buy their oil from the Middle East
when America has its own oil, but with a higher extraction cost. There can no doubt be ways to sit
down with Middle East oil producers to negotiate a reduction in their output which will drive their
price higher. But this will involve inviting Iran to the negotiation table, and Iran would impose its
own conditions which America does not want to hear of. So, the preferred American scenario is to
keep the Middle East perpetually at war to drive its oil prices up because of the uncertainty of
war. This gives oxygen to American oil producers and manufacturing industries with a cheaper oil
extracted on their own soil.
Where does Mauritius stand?
Mauritius does not currently have a foreign currency availability problem because its central bank
has a comfortable cushion of foreign reserves of Rs 300 billion. However, these reserves are
likely to deplete month by month because of the country’s chronic balance of trade deficit, which
will not be bailed out, as is usually the case, at least in the foreseeable future by a surplus of
invisible trade (mainly tourism). Mauritius is also not in a position, right now, to measure the
magnitude of its eventual loss in foreign currency earnings of its financial sector resulting in its
inclusion in the European black list.
The solace we have, in the face of decreased exports of
goods, and probably also reduced financial sector earnings, Heavy investment in
is that with the depreciation of the rupee of around 10%, our infrastructural projects
imports of consumption items will also decrease, but to an of dubious usefulness
extent that we cannot presently measure with any degree of
accuracy. Our other lifebuoy could be an increase in
is a largely unjustified
incoming foreign currency for investment in real estate if financial burden.
these assets depreciate to an extent that will make them
attractive for foreign buyers.
The financing situation of the national budget
Mauritius’ real problem is the financing of its national budget, and in this context, we already had,
even before Covid-19, a very stretched situation because of our national indebtedness which had
reached the limit of reasonableness. The alarming point is that if money has to be injected in the
economy to prevent business failures and destruction of jobs, the budget deficit will have to
increase substantially, especially in a phase where reduced activity in all sectors will result in a
substantial loss of tax revenue. A reality which has for long remained unnoticed is that for years,
our budget deficit of around 3% of GDP (Rs 16 billion) has not gone into measures to boost
economic activity, but into financing a chronic debt servicing burden of about Rs 13 billion yearly.
So, whatever economists may say about budget deficits being a financial tool to boost activity,
this is absolutely not the case for Mauritius because we also have been living chronically on debt
at national level. I am not in the same line of thought as the IMF and their assumption that above
65% of GDP, a country exceeds the upper safety limit, because many other developed countries
are still thriving with a debt of 120% of their GDP. However, we must all admit that, contrary to
well managed economies, our national debt has no useful and productive corollary. If we give
some thought to the reason why we are so heavily indebted, the implacable reality is that the root
cause of our indebtedness is the financing of new electoral promises made at each election
campaign, which, like old age pension, free bus fares and others become permanent items of
expenditure. Heavy investment in infrastructural projects of dubious usefulness, for whatever
Numéro 109 : Janvier-Février 2021 P a g e | 11reason, is also a largely unjustified financial burden. Enough to say that we are living under
crippling debts conditions as well.
Matters can become worse if we have to borrow in foreign currency in a durable balance of
payment deficit situation to keep our reserves at a level which is necessary to keep our country’s
credit rating still attractive for foreign lenders. The other aspect that nobody comments on is the
fact that our published foreign reserves figures are expressed in Mauritian rupees, and our rupee
has suffered a 10% depreciation in one year, albeit for justified reasons. But this also forms part
of management of public opinion.
Mubarak Sooltangos (msooltangos@gmail.com), a consultant, is the author of Business Inside Out (2018)
and World Crisis - The Only Way out, just published this month.
Cette île doit être secouée : le besoin de rêver
Par Amit Bakhirta
« Inventez-vous, puis réinventez-vous. »
Charles Bukowski
L’année 2020 a
indubitablement été une
année qui a ramené
notre monde à une
réalité oubliée mais aussi
brutalement réelle : celle
de la supériorité de la
nature sur l’humanité.
Elle nous a très
certainement rappelé
que nous restons
humblement vulnérables
à son évolution, à sa
mutation. Notre planète
reste suspendue dans
l’infinité de cet univers
dont nous connaissons et
comprenons si peu. Aussi
délicate, sublime et
harmonieuse qu’est la planète Terre, aussi impitoyable qu’elle puisse être : ainsi est le concept
métaphysique du paradis et de l’enfer – l’équilibre universel. Une terre en évolution dicte
l’évolution naturelle d’une économie, peu importe la directionnelle. Ainsi donc, une évolution de
son tissu socio-économique fondamental est inévitable si une nation rêve de prospérité. Elle se
doit.
Si l’évolution est restreinte, l’économie et ses participants ont souvent un besoin urgent d’un
secouement. Un shake qui shake vraiment ! Maurice, à notre humble avis, à ce carrefour de son
histoire socio-économique, en a cruellement besoin. Cette île doit être secouée.
Relier l’Asie à l’Afrique
Pourquoi ? Alors que nous entamons cette décennie, nous ne pouvons que réaliser la suprématie
économique, technologique et militaire de la Chine dans le monde moderne d’ici à 2035 (avec
prudence). La géopolitique internationale n’a pas été aussi cruciale depuis la fin des première et
deuxième guerres mondiales lorsque la suprématie mondiale a changé de mains. La Chine
Numéro 109 : Janvier-Février 2021 P a g e | 12dépassant le PIB des États-Unis d’ici à 2035 pourrait vraisemblablement être la transition
macroéconomique la plus importante que la planète connaîtra au XXIe siècle. La montée du
système socio-économico-politique hybride du communisme-capitalisme par rapport à la réalité
démocratique-capitalisme d’aujourd’hui aura des implications énormes sur les générations à
venir. Beaucoup d’entre nous ne le verront pas. Certains si. Certains auront ainsi la fortune de
vivre une transition mondiale si puissante que la future politique mondiale, la macroéconomie
mondiale et les structures monétaires et financières mondiales seront remodelées.
Pour cette seule raison, Maurice se doit de renforcer ses relations diplomatiques avec la Chine,
l’Inde, la Russie, le Brésil et surtout l’Afrique. L’avenir sera probablement dicté par l’énormité
d’une consommation interne dans ces pays. Nos décisions stratégiques géopolitiques dicteront
donc l’île Maurice de demain. Nous ne pouvons que lui consacrer des ressources adéquates.
Nos liens géopolitiques, notre roue économique et nos marchés financiers doivent être innovés
de telle sorte qu’ils relient véritablement la puissante Asie à la frontière de la croissance, l’Afrique.
L’économie mauricienne ne peut plus se permettre ce neuf à cinq obsolète. Nous devons ramer
24/7, et cela vers l’Afrique, patrie des opportunités. Des opportunités qui peuvent
vraisemblablement conduire Maurice vers une prospérité socio-économique de 1 000 milliards de
roupies de PIB.
Comment ? Jusqu’à ce que nous, en tant que peuple, nous entendions sur une destination socio-
économique aussi spécifique, propulsés par des bons dirigeants à la servitude altruiste de notre
nation et qui nous bénissent avec l’intellect requis et un environnement propice pour atteindre cet
objectif quantifiable avec des multiplicateurs socio-économiques sensibles, nous resterons sans
direction !
Des décisions et réformes politiques publiques et privées difficiles et importantes doivent
alimenter notre réinvention économique ; nonobstant cela, Maurice risque avec le temps de
perdre tout avantage concurrentiel.
Si le navire socio-économique mauricien n’a pas de destination socio-numérique claire, le pays
naviguera alors à l’aveugle, étant semblable à sourire à une belle femme ou bel homme dans
l’obscurité totale.
L’Afrique reste notre panacée
Nous devons nous asseoir, briser cette économie, et déterminer comment nous ferons évoluer
notre structure économique, pour une croissance durable et inclusive qui nous amènera cet
objectif numérique. D’un PIB d’environ 496 milliards de roupies en 2019, nous atteindrons au
mieux ce chiffre de 1 000 milliards de roupies en 2038 (après 18 ans et en supposant un taux
nominal de croissance moyen pondéré du PIB de 3,8%). Doubler le PIB d’un pays n’est certes
pas une tâche facile, mais la taille insignifiante de Maurice à l’échelle mondiale nous aide. La
Chine et l’Afrique étant deux économies de consommation super massives, nous ne pouvons que
vouloir nous en nourrir.
L’industrie mauricienne doit être réinventée, doit être « africanisée » ; autant que stratégiquement
possible. Ne réinventons pas la roue mais polissons-la. Nous avons besoin des meilleurs
cerveaux que ce petit morceau de terre au milieu de l’océan Indien puisse produire. Nous avons
également besoin des meilleurs Africains (il existe déjà un vivier incroyable de jeunes hautement
talentueux, intellectuels, qualifiés et non qualifiés en Afrique ; l’intellect certes ne connaît pas de
frontières).
Les chasseurs locaux sentent toujours les « proies » locales différemment et surtout
distinctement. Et l’Afrique a 54 territoires de chasse si différents pour notre petite économie. Vous
ne pouvez pas rêver de chasser dans la jungle africaine sans les bons outils de chasse et une
connaissance approfondie du terrain. Pourtant, de nombreux grands conglomérats locaux ont
essayé et échoué. Cependant, l’échec fait partie de l’apprentissage, partie intégrante de
Numéro 109 : Janvier-Février 2021 P a g e | 13l’éducation, de l’innovation, de la croissance, du progrès et de la prospérité. Pourtant, au niveau
national, notre culture en décourage.
Pourquoi la culture américaine est-elle si
Nos décisions stratégiques entrepreneuriale ? Parce qu’elle honore,
géopolitiques dicteront l’île séquentiellement, ceux qui essaient, échouent et
Maurice de demain. apprennent de leurs erreurs, repartent et réussissent.
Des gens partout, malgré des cultures socio-
économiques, juridiques et politiques variées, sont
souvent confrontés aux mêmes besoins et désirs, et l’Afrique reste donc notre panacée. Leurs
marchés restent raisonnablement sous-desservis (pour 1,2 milliard de consommateurs, peut-être
3 milliards d’ici 2030). Un alignement privé-public des intérêts à long terme sera très
probablement la base de ce « grand rêve ». Mais on ne peut aimer la mer des tropiques sans
aimer la chaleur !
Nous avons besoin d’une voix économique forte à la table de l’Union africaine. Une voix qui
reflète l’ambition socio-économique de notre nation. Maurice doit à nouveau oser de rêver grand.
Nonobstant, sans plan, un rêve reste un rêve.
Opportunité de levier unique
Nous entamons un nouvel ordre de cycle d’investissement. La pandémie de Covid-19 a accéléré
de profonds changements dans le fonctionnement des économies et des sociétés. Nous voyons
des transformations à travers la durabilité, les inégalités, la géopolitique et la politique
macroéconomique. Cela se reflète dans nos thèmes d’investissement en 2021, celui-ci devenant
de plus en plus intellectuellement difficile. À ce stade socio-économique, les taux d’intérêt
globalement bas couplés à la faiblesse des taux de croissance économique dans les pays
développés obligent les entreprises mauriciennes à être pleinement et intelligemment pompées
de dettes jusqu’au cou !
La structure du capital de nos entreprises locales doit donc, autant que possible, être imprégnée
d’une dette libellée en roupies et en devises étrangères historiquement peu coûteuse mais
productive (expansionniste) et se concentrer sur la croissance. Les activités de fusions et
acquisitions ainsi que les restructurations de capital devraient être en plein essor ; le marché,
dans de nombreux espaces, est mûr pour une consolidation suivie d’une expansion régionale
stratégique. C’est le moment de s’endetter, par des dettes massives (mais sachez en utiliser à
bon escient avec des opportunités d’entreprise inorganiques raisonnables et importantes ; les
rachats d’actions, même ceux avec effet de levier, sont plus sensés que jamais).
Avec une forte hausse des niveaux d’endettement public et privé à l’échelle mondiale et une ère
inflationniste mondiale faible, la croissance restera probablement anémique dans un avenir
prévisible. Les bons du Trésor ont un rendement négatif à moins de 1% dans les pays
développés. Dans le grand monde émergent, elles s’en tirent nord de 3% à 6% tandis que les
euro-obligations africaines en devises fortes rapportent au nord de 4% à 12%, attrayants vis-à-vis
des taux d’inflationnistes nationaux supérieures et donc des opportunités d’arbitrages. Par
conséquent, dans cet environnement actuel, nous prévoyons une croissance inférieure à la
normale à Maurice, à moins des réformes indispensables, ce qui prend malheureusement du
temps.
Les marchés des capitaux en feu en 2021
Chez Anneau, nous maintenons notre instant plus pro-risque tactiquement en 2021 en ajoutant
une surpondération et une concentration des actions nationales alors que nous voyons la
plausible reprise économique s’accélérer (des bas de 2020). La prime de risque sur les actions
nous paraît raisonnable et la baisse des taux réels pourrait lui permettre de se comprimer
davantage, soutenant les valorisations sélectivement – localement et internationalement.
L’accent doit donc être mis sur la valeur avec une inflexion pour la qualité et les noms robustes,
Numéro 109 : Janvier-Février 2021 P a g e | 14en particulier dans les marchés émergents à haut rendement qui, selon nous, connaîtront le
changement tactique mondial tant attendu dans les prochaines décennies. Nous voyons de telles
expositions fournir une résilience au début de la nouvelle
année, en particulier si le soutien budgétaire déçoit aux Que les crises soient
États Unis ou si le déploiement des vaccins est retardé. excellentes pour des
Nous favorisons donc également certaines expositions réformes audacieuses
cycliques que nous considérons comme florissantes à
et intelligentes.
mesure que le calendrier du déploiement généralisé des
vaccins avance.
En 2021, nous prévoyons que la Banque de Maurice fera plausiblement face à des temps
difficiles à venir, car elle devra équilibrer la nécessité de maintenir des taux d’intérêt bas pour
stimuler cette reprise économique et elle fera face à un besoin de resserrement à mesure que
l’inflation s’accélère (2,4% reste probablement le décollage), avec une roupie sensiblement plus
faible, surtout si nous ne transformons pas la Mauritius Investment Corporation en un inducteur
de croissance nette de l’inflation – les yeux sur nos réserves et la roupie.
2021 verra réduire le risque d’une hausse rapide des taux d’actualisation affectant les
valorisations dans presque toutes les classes d’actifs. Nous aimons les actifs durables, car le
virage tectonique vers la durabilité ne fait probablement que commencer. Nous voyons
également un plus grand rôle pour les actifs exposés sur le marché chinois et les actifs du
marché privé pour le rendement, l’appréciation potentielle et l’exposition à des tendances de
croissance uniques.
L’économie mauricienne ne peut pas se caser à cinq heures dans ce monde moderne ! Nous
devons réinventer ce moteur pour que nous passions à un modèle économique 24/7 et devenir le
« Monaco » africain. Que les crises soient excellentes pour des réformes audacieuses et
intelligentes. Cet objectif de 1 000 milliards de roupies de PIB doit être humblement fixé et
respecté. Mais par qui ?
« Les lèvres de la Sagesse sont closes, excepté aux oreilles de la Raison. » (Le Kybalion)
Amit Bakhirta est le fondateur et CEO de la firme Anneau (www.anneau.co), une société de services
financiers à Maurice.
Central bank digital currencies and the war on cash
By Kristoffer Mousten Hansen
Twenty twenty is a year dominated by bad
news. While governments around the world
have imposed extremely destructive
restrictions on economic life and promise a
“Great Reset” that amounts to a great leap
forward into the socialist future, central
bankers have advanced plans for
implementing central bank digital currencies
(CBDCs). These may arrive as early as next
year. Yet what is the motivation behind this
innovation?
Reports recently published by the Bank for
International Settlements (https://www.bis.org/publ/othp33.htm) and the European Central Bank
(https://www.ecb.europa.eu/euro/html/digitaleuro-report.en.html) provide part of the answer.
Numéro 109 : Janvier-Février 2021 P a g e | 15These publications provide fascinating insight into the theories and ideologies driving central
bankers in their pursuit of CBDCs.
Monetary policy? Moi?
One perhaps surprising theme in both reports is the disavowal of any monetary policy behind
plans for introducing CBDCs. The BIS report claims that “monetary policy will not be the primary
motivation for issuing CBDC” (p. 8) and the ECB report notes that a “possible role for the digital
euro as a tool to strengthen monetary policy is not identified in this report” (p. 3). One might first
of all suppose that introducing a new form of money would by definition amount to monetary
policy, at least in a broad sense, and secondly perhaps find it a tiny bit weird that institutions
dedicated to researching and implementing monetary policy would not have considered the
potential effects of a new form of money in light of its effects on policy. But what is really striking
is that both reports – and especially the one issued by the ECB – at great length detail the
implications for monetary policy of CBDC. True, they say they don’t, but looking beyond the
executive summary and paying attention to what is written in the report itself puts the lie to that
claim.
In order to see this, we only need to look at the key features the central bankers identify as
desirable in a CBDC: it should be interest bearing, and it should be possible to cap how much
each individual can hold. Both measures are clearly aimed at supporting monetary policy. The
cap on holdings forces people to spend their money, driving either price inflation or investment in
financial assets, and by making the CBDC interest bearing (or remunerated, in the language of
the ECB) it becomes a tool of setting and passing on policy rate changes, including negative
interest rates.
The ECB’s Report on a Digital Euro (October 2020) in particular goes on at great length about the
need to limit or disincentivize “the large-scale use of a digital euro as an investment” (p. 28). The
reasoning behind this position is crystal clear: since monetary policy has driven interest rates into
negative territory, the ECB should not allow large-scale holding of digital euros, since investors
would then, quite sensibly, chuck their holdings of negative-yielding bonds and seek a safe haven
in digital euros – that is, if they can hold them at no cost.
Similarly, the ECB is averse to letting people convert their bank deposits into digital euros (p. 16),
which would reside in their individual wallets rather than in a bank account. Indeed, the horror of
what the BIS and ECB reports call “financial disintermediation” looms large in the minds of central
bankers: if people keep their money outside of banks, these will have less money to lend out,
thereby increasing borrowing costs. In the words of the BIS report, they are concerned that “a
widely available CBDC could make such events [i.e., bank runs] more frequent by enabling
“digital runs” toward the central bank with unprecedented speed and scale. More generally, if
banks begin to lose deposits to CBDC over time they may come to rely more on wholesale
funding, and possibly restrict credit supply in the economy with potential impacts on economic
growth.” (p. 8)
Of course, Austrian economists, since Ludwig von Mises’ The Theory of Money and Credit
(1912), understand that “financial disintermediation” can really be a blessing. In the context of
digital euros, all it means is that people would hold the amount of cash they deemed desirable
outside the banks. They would only make true savings deposits in banks, i.e., they would only
surrender money that they did not want instant access to.
Under such circumstances, banks would be incapable of expanding credit by issuing unbacked
claims to money; they could only make loans out of the funds their customers had explicitly made
available for that purpose. This would not only result in a leaner or sounder financial system, it
would also avoid the problems of the perennially recurring business cycle. And contrary to what
the central bankers fear, the supply of credit would not be restricted, it would simply be forced to
correspond to the supply of real savings in the economy. This, unfortunately, is an understanding
of economics completely alien to central bankers.
Numéro 109 : Janvier-Février 2021 P a g e | 16You can also read
