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“The Energy Transition and its Macroeconomic Effects (2)”
By Gregor Heinrich (2)
Remarks and conclusions of this BIS paper by Alberto Americo, Jesse Johal and Christian Upper.
When the war in Ukraine reached another step with the invasion by Russian troops in 2022, the concern for the future of energy prices and their long term on industrial production, prices and competitively skyrocketed. At least that was the case in Western Europe, emphasized also by the large reduction in the flow of cheap gas from Russia.
All of a sudden, certain topics became headlines again and were the focus of attention not only of energy experts, but the public at large: dependency on one or few types of energy sources, dependency on one or only few providers of such energy sources, the urgency to find alternative energy sources, the speed, desirability and cost of transitioning to new, alternative energy sources, etc.
While such discussions are important, if not essential, the information given in the media seemed to concern mainly the effect on consumers, those primarily concerned with the sudden change in the energy landscape.
A lot less attention was given to the macroeconomic consequences of energy transition, and to whether some countries, for instance fossil fuel and metals and minerals producers, might suffer or benefit more than others from such transition.
This is where this Paper by the three BIS economists sets in. The authors conclude that a small number of fossil-fuels producing countries are likely to be severely hit. On the other hand, specialized minerals producers should experience large net benefits. Most of the world who are fuel importers, might benefit to some degree.
When exploring the macroeconomic implications of the energy transition, the paper focuses on three types of country: (i) fossil fuel exporters, who will see their main source of export and fiscal revenues severely eroded, forcing a shift to a new growth model; (ii) fossil fuel importers, who will spend less on importing fuel due to the abundance and geographical dispersion of clean energy resources; and (iii) exporters of key metals and minerals, who are likely to benefit from a structurally higher demand for their products and possibly from a new metals and minerals supercycle.
As the authors write: “The long-term picture may be as follows. Most of the world, particularly East and South Asia, should benefit from replacing expensive, polluting, imported fossil fuel with cheaper, cleaner, locally sourced energy. For major fossil fuel producers, especially those in the Middle East and North Africa, the economic benefits of clean energy will probably be overshadowed by the decline of existing energy sources.
Producers of key metals and minerals (e.g., copper, lithium, rare earths) should see amplified benefits, but the value of these exports will be substantially smaller than for fossil fuels. Overall, economic activity should shift from fossil fuel producers and towards energy importers and metals/minerals producers.”
Based on analysis of publicly available data, made visible in several clear graphs, we can see that:
• “Clean energy” is growing, and the cost of generating is improving far faster than expected.
• The relative cheapness and abundance of renewable energy sources is increasing their usage.
• The outlook for fossil fuel electricity is poor.
• The electrification of transport is accelerating, with increasing global EV sales, increase in the driving range and in particular the decrease in the cost for EV batteries which will put pressure on oil demand.
• This may in turn create a “supercycle” for minerals such as copper, lithium, cobalt and rare earths, all essential for the generation, storage and use of electric power.
On the basis of these facts the authors then address possible macroeconomic consequences. This may seem highly speculative, but the authors base their analysis on experiences (and data) from case studies of representative countries during previous commodity booms and busts.
For instance, as regards oil producers, the 2014 oil price crash had major macroeconomic impacts on producers, for instance as regards FX reserves, current account balance or government debt to GDP ratios.
As regards fuel importers, India’s experiences in boom-bust cycles are highlighted to show the tight correlation between oil prices and the country’s economic and financial conditions.
As regards the effects on suppliers of metals and minerals, the analysis takes as example the boom for Peru and Chile as a consequence for the commodity super cycle. Clearly the real wages, the exchange rate and also the Government debt to GDP ratio are closely correlated to the copper price.
In the last chapter of the paper, the authors analyze countries’ exposure to the energy transition and list several potentials “winners and losers”. Fossil fuel exporters and importers whose income from fossil fuel makes up a relatively large portion of GDP or of the country’s exports are likely to suffer more.
As regards fuel importers, 80% of the world population live in countries that are net importers of fossil fuels. The authors conclude that the benefits of the transition will be spread out far more than the costs of the transition will be. Nevertheless, the authors’ analysis show that Asian economies should see the largest benefits from abandoning fossil fuels. Interestingly, a country’s current reliance on fossil fuels, while important, is not the only factor that will influence how much and how quickly it stands to gain from the energy transition. Mineral reserves and refining capacity for instance will become increasingly important yet are concentrated in relatively few countries.
As a conclusion the authors recommend that all countries should immediately start building resiliency and making preparations for a very plausible path of volatile energy prices and perhaps even a rapid collapse in demand for fossil fuels. The range of such preparation is of course wide and may vary depending on whether a country is a fossil fuel exporter or importer. But importers, particularly those in Emerging Market Economies, can use the energy transition as an opportunity for structural reform and better insulation from volatile global energy markets.
(1) BIS Paper No. 135, May 2023; https://www.bis.org/publ/bppdf/bispap135.pdf
(2) Former Chief Representative for the Americas, BIS; Basel, Switzerland. www.gregorheinrich.info
Fiat, Digital, Crypto-Currency, & Economic Fluctuations
Amer N. Raja (*)
The efficient functioning of the economy requires a common currency to facilitate the exchange of goods and services. In order to have a smooth functioning of complex and multiple financial transactions a common acceptable medium of exchange is required. Any currency serves this fundamental use of medium of exchange.
Since time immemorial, currencies have existed and have changed forms from barter to more general ones. Other than barter system, there is no natural currency in its pure form, all are but artificial human construct. Main types of currencies are:
• Commodity Money: Commodity money is similar to a barter system and a slightly refined form of barter system. Generally, materials used are comparatively rare and of high value so to perform functions of medium of exchange, purchasing power and measurement of account. The key aspect of commodity money is that its value is determined by the literal value of the commodity itself. Commodity money may consist of gold, silver, spices, shells, etc.
• Gold Standard: Monetary system where the currency of country is pegged against gold is known as currency based on gold standard. The amount of gold it possesses determines the value of the currency. The money can be converted to the amount of gold corresponding to its value. For instance, the Bank of England fixes the price of gold at GBP 1,000 per ounce, the value of one pound would be 1/1000th of an ounce of gold.
• Fiat Money: All prevalent currencies (Dollar, Pound, Yen, Rupee etc.) are fiat money. These are supported and approved by governments and recognized by monetary authorities. Material used in making notes or coins do not determine the value of bank note or coin rather it is government devised system which determines its value.
In other words, Fiat money is currency because respective government says it is a currency. Without common medium of exchange, working of economic system will be inefficient and unreliable. Almost all countries follow fiat monetary system and issue fiat currency and control money supply through central bank via commercial banks. Trust of public as well as power to enforce in issuing government or central bank makes it acceptable. Military power, economic robustness and political stability are the main factors that make a country strong and consequentially will help in ascertaining value of fiat money.
As per the international monetary system, central banks through government regulations are authorized to issue fiat money viz., paper money and coins.
Digital currency: It is an intangible medium of exchange which exists only electronically on some computers and related devices. Any kind of digital currency is merely an electronic representation of the commercial value of a particular currency. It has no physical existence. It can be called electronic currency, electronic money or digital bills, etc.). Further, there are two distinct types of currencies, namely electronic money and virtual currency.
Though digital currency is still in development and there is not any strict classification, yet monetary specialists distinguish digital currency into:
• Electronic money: when monetary exchange happens with the approval of monetary authorities and is a legal tender. Examples are Paypal & Pingit (Barclays).
• Virtual currency: When currency is not officially approved by monetary authorities and not considered as a legal tender. Virtual currency is further sub divided into centralized virtual currency and de-centralized virtual currency (or crypto currency).
• Cryptocurrency: It is a currency which is electronically shielded by cryptography. In fact, all cryptocurrencies are digital currencies, but all digital currencies are not necessarily cryptocurrencies. The current functioning of Cryptocurrency is an eye-catching novelty.
Implications of Government issued Currency
Fiat, a government-sponsored prime currency, is also partially crypto. It is a simple paper but when encrypted by the government, becomes legal tender. It cannot be accessed or issued by everyone, only authorized entities can manage and issue.
They issue through central bank and their agents (banks). “Whoever controls money, controls the world” Currency has always been used as a tool of power and control.
Libertarians take extreme view regarding governments and fiat currency that both are essentially evil and nothing good comes of it. This assertion requires holistic analysis; however, it cannot be denied that they are generally abused yet their beneficial aspects cannot be ignored as well. Factually, government/authority and currency are necessary requirements for managing economy.
Keeping that in view, we have to determine what is the best alternative. Currency on one hand can be a cause of boom and bust but essentially a weapon for managing / correcting imbalances.
If used well as deficit financing, it can produce good results by providing monetary resource to entrepreneurs and to masses for consumption that can stimulate economy by providing employment, capital investment, raising standard of living and building infrastructures.
It can be used for growth and progress, provided authorities are competent and morally upright, if not it can create havoc which we do observe in most of the less developed countries. Those who are competent and scrupulous will issue with prudence and appoint talented people and distribute in fair proportion to competent people and keep check on misuse by both lenders and borrowers. It is a delicate balance and slight disturbance can result in acute ramifications and economy can bust.
On the other hand, corrupt authorities can manipulate a lot. Currency is also used as a tool of power and control. Management of money is all about political economy. Head of the Central Bank or his sponsors can pass inside information to people in financial trading and whilst making decisions based on this information they can gain exponential profits at the loss of others. They can devalue / overvalue for their vested interests. Hence, Who is going to manage? How it is allocated? What kind of reward and penalty system is maintained? and, How is it is being managed?, determine the outcome.
On the negative side, it can be used as a tool of suppression by favoring any particular group over another. As well as it can be used as tool of progress and prosperity by providing financial resources to competent and deserving people and promoting developmental projects. As far as a tool of oppression and other negative actions, it is outright evil. Even the good part requires extreme prudence to ensure progress and growth. If not channeled in proper way, it can have adverse repercussions, reverse effect, and create vicious circle. It can have compound effect more on the negative side than the positive. Moreover, it has an inherent inflationary element in it but that can be offset if it is managed professionally and ethically.
Future of Digital & Crypto:
One cannot say with certainty about the future of Crypto currency; for sure it will stay as long as monetary authorities’ crackdown on it or they keep overlooking. It largely depends on the founders/ people connections within monetary system/authorities. At this moment, it is highly risky. Three likely possibilities are:
a. It will become completely defunct.
b. It will be converted into digital currency where it will be regulated by monetary authorities and will follow procedures, protocols, and other requirements. However, it will not remain fully encrypted and will not remain fully decentralized.
c. It will remain a speculative tool with limited use and that also till monetary establishment will let it remain so.
Most probably it will stay till digital currency comes into force, then Crypto will merge or just vanish. Crypto at this moment is insignificant and does not have any impact on boom or bust. It can be replaced by fiat and have the same effects as fiat. Authorities are not clear how digital currency will work and are experimenting and figuring out. For now, the impact of all kinds of digital currencies on boom and bust is minimal because the overall volume is insignificant as compared to fiat currency.
Conclusion
In a nutshell, management of fiat currency requires utmost caution in order to get beneficial results. Possibilities of misuse and abuse are immense as these are very difficult to detect in the beginning but worsen by leaps and bounds with time. The monetary system is more of a political matter rather than financial. All faults lie in the fact that the political part of currency is not given proper attention even in general while in academic curriculum it is barely mentioned.
One major failing is that they are presenting it as all good, cure-all solution to monetary matters, without duly highlighting the possible adverse effects. They do not educate masses about the negative effects and provide material for the politicians to exploit and manipulate who are expert in pandering on biases. Besides, when they come in power, they favor their own supporters and vindicate opposition by using fiat money system.
Libertarians were enthusiasts of crypto currency as a way of escaping governmental clutches but in their naivety, they provided solid base to develop and control on all aspects of new digital currency.
The future of crypto currency is bleak, but use of government regulated digital currency is imminent. Currency as a tool of control and power is one of the prime goals of governments and digital currency can serve this purpose much better than fiat currency. There is a great possibility that fiat will be replaced by digital currency with probable merging of Crypto into Digital Currency.
The monetary system is not based on altruism but on hard and crude profitability. However, as a derivative, if used properly, it can help benefit the general welfare of society. Main reason for authorities’ interest for adopting digital currency is that they can trace it more effectively than traditional fiat money.
(*) Amer N. Raja holds Master from The International University Missouri (Pakistan Campus). Editorial Board Member of «Revista del Ciclo Económico ©» Contact: maxmin17@yahoo.co.uk
Author: Victor Pakpahan (Sekolah Tinggi Manajemen IPMI, Indonesia)
Abstract: This paper research the impact of company reputation, service quality and customer satisfaction towards customers’ loyalty and investigate the relationships among these variables. The investigation is undertaken at an Indonesia’s mining and construction end users or customers of a ground engaging tools (GET) supplier. The research should fill the gap in the customer loyalty study within the mining and construction segment globally and specifically, Indonesia. This research surveyed 25 past and current customers of a Ground Engaging Tools supplier in the mining and construction market in Indonesia by way of questionnaires online form. This research empirically tested all variables to measure the effect and significance between supplier reputation, service quality and customer satisfaction toward enduser loyalty. Data was processed using SPSS and SEM PLS. The result shown both service quality and customer satisfaction have positive and significant effect toward customer loyalty, however, company reputation showed an insignificant or weak effect towards loyalty. With this analysis, GET supplier can formulate appropriate responses to strategize the company’s resources to improve market requirements in the mining and construction segment.
Keywords: Customer loyalty, Mining industry, Company reputation, Service Quality
Authors: Rosada Tri Asnada , Ir. Yulita Fairina Susanti (Sekolah Tinggi Manajemen IPMI, Indonesia)
Abstract: The telecommunications service company is one of the infrastructure, utilities and transportation sub-sector companies listed on the Indonesia Stock Exchange that is growing and developing in Indonesia. This is indicated by the number of telecommunication network towers in urban and rural areas. The construction of telecommunications network towers in urban and rural areas has led to the development of telecommunications companies. This study aims to analyze and evaluate the effect of Corporate Social Responsibility (CSR), Return-on-Equity (ROE), Debt-to-Asset Ratio (DAR), Debt-to-Equity Ratio (DER), and Firm Size (SIZE) on Stock Returns. By using the quantitative method, the results show that, partially CSR and DER variables have a negative effect on Stock Return whereas ROE, DAR, and SIZE variables have a positive effect on Stock Return in Telecommunication Service Companies in Indonesia. Simultaneously, the CSR, ROE, DAR, DER, and SIZE variables have a positive effect on stock returns on telecommunications companies in Indonesia with an Adjusted R-squared value of 0.904925 or 90.49%. This means that the percentage contribution to the influence of the independent variables namely CSR, ROE, DAR, DER, and SIZE on the dependent variable, namely Stock Return of 90.49% or the variation of the independent variable can explain 90.49% of the variation in the dependent variable. While the remaining 9.51% is influenced or explained by other variables not examined in the regression model in this study.
Keywords: Corporate Social Responsibility, Financial Aspects, Stock Returns, Telecommunication, Firm Size.
Inflation and money
By Bahri Alam (*)
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The view of classical school of thought that the relationship between supply of money and price level is proportional holding Velocity of circulation of money and Quantity of goods and services constant.
The above cited view is correct only above the level of full employment, but generally the economic conditions of the economies less than full employment invalidating the classical view and supporting Keynesian view.
After Keynes the monetarists view also supported the classical, but not gained too much popularity and global economies moves towards supply side economics.
The global economy from first financial crises (2007) till to date increased supply of money as a injection to support growth, but during this period certain bottle necks in the form of financial crises 2 and COVID pandemic (supply disruption) also responsible for inflation.
Currently the global economy facing two kinds of problems one is inflation and Chinese economy is facing deflation commonly known is stagflation.
Now a question arises how to counter current problem, it’s very simple green push also introduce as a tool of monetary policy and reduce influence of OPEC as a cartel and should be regulated by certain law.
The second suggestion that I will give investment on labour force to do productive work, this tool will be more suited to Pakistan economy and will s involve multiple problems like unemployment, job security
(*) Bahri Alam is Assistant Professor at Higher Education Department Kp (Pakistan). Contact: pakeconomist084@gmail.com
Re-imagining education and learning in the post pandemic era
Dr. Shauli Mukherjee (*)
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Twenty-first century world is undoubtedly a VUCA world – a volatile, uncertain, complex, and ambiguous world where we are faced with unique and unheard-of challenges almost on a regular basis. Since the turn of the century, the chaotic, turbulent, and rapidly changing environments in which we live have become the ‘new normal’. Exploding technological developments, dramatic demographic growth, immigration, ecological disasters, and geographical trends disrupt our lives at an ever-increasing pace and breadth. These circumstances, accelerated by the global pandemic have caused major breakdown of order in almost all organizations, including education and higher education, as the four VUCA components of volatility, uncertainty, complexity, and ambiguity interact with each other in chaotic and sometimes conflicting ways.
In the past one and a half years since the world has been embroiled in a global pandemic, there have been considerable debates, dialogues and discussions about how higher education should both cope with its immediate threat while also considering pivots toward new models and innovations for the future. Courtesy to the COVID times which had caused major disruptions to our traditional thought patterns concerning education and on the positive note, had actually compelled us to think and act out of the box and embrace considerable flexibility and adaptability and devise innovative strategies and methods to significantly address the emerging complexities concerning the sphere of education and higher education.
Conventional and traditional educational norms force our learners to metaphorically colour within the lines – that is, to comply, to conform and to compete. Every learner is given the same amount of time to learn the same thing in the same manner and preferably on the same day. No wonder that the learners struggle miserably to realize their true potential. We must realize that the real world, beyond the confines of the fancy physical infrastructure of a higher education institution, rewards those amply who can actually think out of the box and can carve their own path. Moreover, in order to sustain and thrive in the twenty-first century ever increasingly complex workforce, the learners have to be oriented more towards collaboration and cooperation rather than only cut-throat competition. In order to address and challenge the emerging global complexities, the world does not require mechanically trained minds loaded only with a vast repertoire of facts and figures – minds which are systematically formulated to think alike, rather the world needs innovative and creative minds which are capable of divergent thinking and out of the box ideation.
It is worthwhile to cite here that Industry 1.0 in the 18th century had been an era of mechanization. Industry 2.0 in the 19th and early 20th century had been an era of mass production. Industry 3.0 in the 20th century had been an era of computers and quite significantly, Industry 4.0 in the 21st century is an era of smart machines and globalization with its focus on autonomous robots, augmented reality, additive manufacturing, Big Data, Cloud Computing, Cyber Security, Cyber Physical System, Internet of Things, Simulation and System Integration. There can be no doubt that the skill sets required to thrive in the 21st century ever increasingly globally complex workforce happens to be complex problem solving, critical thinking, creativity, people management, coordinating with others, emotional intelligence, effective judgement, and decision making, service orientation, negotiation and cognitive flexibility. Additionally, there needs to be a significant prioritization on people and team orientation, self-management with focus on self- development and self- awareness, analytical mindset and learning orientation, creativity and innovation, business and entrepreneurial orientation, cross cultural orientation and social sensitivity, dealing with uncertainties and changes, integration of technology, communication and data, globalization, and last but not the least, solution orientation and problem solving.
Accordingly, in order to prepare our young learners to cope with the diverse challenges of the 21st century, we must allow them more time which they can effectively utilize in following their curiosity, creating, sharing, exploring and experimenting with their unique and novel ideas. The educators and the responsible adults have to stop stigmatizing failures and mistakes and realize that they are both essential and integral components of a significant learning experience. If we truly want our present generation to evolve into creative problem solvers, we must give them ample scope to explore the 3 essential Ps:
• Play
• Passion
• Purpose
It is undoubtedly a potent combination of Play, Passion and Purpose that makes a person truly creative. We must allow these creative minds to not only seek innovative solutions to the problems but also to probe and look for inherent problems in the existing solutions. Our young learners must take complete ownership and responsibility of their own learning and in order to turn it into a visible reality, they must be given both choice and voice to determine and ascertain what, where and how they would want to learn. The teachers and the parents must significantly attempt to develop a growth mindset among the learners. It is of no matter what one’s ability is – one’s effort is what ignites that ability and turns it into an accomplishment. The passion for stretching oneself and sticking to it, even when things are not going that great is the hallmark of the growth mindset that will allow our young learners to thrive during some of the most challenging times in their lives. Additionally, we must aim to develop our learners into self-motivated learners as well as life-long learners who will be committed to learning, unlearning, and re-learning at their own pace in all significant phases of their lives. We all have these three basic and innate psychological needs – competence, autonomy, and relatedness. When these innate needs are satisfied, we become motivated, productive, and happy. When our inner drive to be autonomous, self – determined and connected to one another is liberated, we achieve more and lead truly fulfilling lives. This is so true and of utmost relevance to our young learners as well.
In order to nurture such creative minds of our young learners effectively, the educators, the education leaders, the education policy makers – that is the entire educational fraternity needs to redefine and re-imagine their roles in driving this momentous shift towards empowering individual learners by maximizing their learning potential to ultimately evolve into self-motivated life-long learners. Both the educator as well as the learner have to wholeheartedly embrace the benefits of anytime and anywhere learning and have to stay committed to continuous learning, unlearning and re-learning across all significant phases of their lives. In fact, one of the positive offshoots of the global pandemic happens to be the paradigm shift from teaching to learning when it comes to the educators, who, we all presume would continue to inspire, motivate, stimulate and at the same time facilitate the love for life-long learning among the learners as well as among themselves. It is for all of us to realize and appreciate the fact that teaching is not a mechanical task or process of transfer of facts and content from one to another. It is rather the most sophisticated and creative profession which helps to enable the young learners to evolve into more confident, equipped, dynamic and authentic versions of themselves.
(*) Dr. Shauli Mukherjee. With a purposeful career in the education space spanning over more than 20 years, Dr. Shauli Mukherjee has dedicated her life towards promotion of child-centric and activity-oriented education. A passionate educationist and a thought leader with a background of setting up and leading new age K- 12 schools, Dr. Mukherjee had been the Founder Principal of Adamas World School and STEM World School, the first STEM school in West Bengal. Under her inspiring leadership, STEM World School has been ranked and awarded as the 2nd best International Day School in West Bengal by Education World. Dr. Mukherjee ardently believes that the purpose of meaningful education is to develop lifelong learners, creative thinkers and responsible global citizens who are confidently equipped to face the challenges of an uncertain and constantly unfolding future. All through her career in education, Dr. Mukherjee had actively contributed to and spearheaded the process of creating a personalized, engaging, and stress-free curriculum for children of all age groups. She has been the recipient of numerous awards and accolades including NATIONAL QUALITY EXCELLENCE AWARD, GEM OF INDIA AWARD, SARVEPALLI RADHAKRISHNAN AWARD, GURUPNISHAD SAMMAN, GURUVARYA SAMMAN, NATIONAL EDUCATION LEADERSHIP AWARD in the category of commitment to excellence in education, (to name a few), WORLD PEACE AWARD. She has also been awarded for being among INDIA’S TOP 50 WOMEN LEADERS IN THE EDUCATION INDUSTRY & TOP 20 REVOLUTIONARY EDUCATION LEADERS by the Academic Council of ULektz. She is associated with premiere educational organizations across India as well as globally in senior advisory capacity. She is also recognized among 99 WOMEN ACHIEVERS OF INDIA FOR THE YEAR 2021. As a highly prolific motivational speaker, she is regularly invited to numerous national and international conferences, summits, conclaves and events to share her insights on the futuristic and transformative role of education. She is currently working as the Director of School of Education and Dean of Students’ Affairs at Adamas University, Kolkata.
2019. An Inquiry to Rousseau’s Economic Thought. Hernán E. Gil Forleo