GS-III: An intensifying whimper that has begun to take a global toll

News

News show signs of another economic crisis and stock market decline.

Background

• The economic situation around the world is rather grim. From synchronized global growth in the first half of 2017, we are now in the midst of a synchronized slowdown exacerbated by the US-China trade war.
• Merval Stock Market dropped 48% in a single day and the peso has fallen by 85% over the last three years.
• Many countries in Europe have been or have now fallen into negative interest rates, with Switzerland, Denmark, Sweden, and the Eurozone all with minus signs on interest rates.
• Countries that account for almost a quarter of total global output now have central banks with policy rates set below zero.
• The amount of “sub-zero” debt, that is debt with negative interest rates, is at an all-time high of $15 trillion.
• Europe’s slowdown is fully demonstrated by the entire German yield curve going below zero last month.

What is the issue

• Large parts of the world are starting from negative interest rates.
• This means that monetary policy stimulus as a method to combat the slowdown is rendered largely ineffective, and central banks in Europe, Japan, and the US may have to once again increase the size of their balance sheets.
• The only other choice is to use fiscal expansion to counter the slowdown.
• A third choice is to take the impact of the slowdown without too much of a cushion, but democracies are ill-equipped to deal with the negative political reaction to prolonged recessions.

Way Forward

• India must use any window of opportunity to undertake any structural reforms that present themselves.
• Low oil prices, good global growth, and moderate inflation are such windows.
• India’s medium-term economic growth is supported by favourable demographics.
• In the short-term government may not undertake deep structural reforms that may impact growth and employment.

GS-III: Cryptocurrencies could constrain a country’s choices

CONTEXT

Facebook announced launching a cryptocurrency called Libra, designed to appeal to its global user base of over 2 billion.

Libra

• It will be backed by a basket of fiat currencies.
• It is supported by a consortium of large-scale corporate houses, financial services firms, and venture capitalists.
• Millennials have little patience for expensive traditional banking methods for cash transactions. They would likely flock to alternatives like Libra.

Impossible trinity

• It is the “trilemma” of monetary policy. It states that it is impossible to have all three of the following conditions fulfilled at the same time:
• A fixed foreign exchange rate
• Free capital movement
• An independent monetary policy
• Even before cryptocurrencies, governments looking to control the monetary aspects of their economies have been subject to this trilemma, and have been forced to implement only two of the three conditions.
• If you want control over both your exchange rate and monetary policy, you would have to impose controls on free capital movement.
• Hence the existence of capital controls such as India’s Foreign Exchange Management Act.
• The trilemma is a theory based on the “uncovered interest rate parity condition”.
• It is supported by evidence-based studies where governments that have tried to simultaneously pursue all three goals have failed.
• Strong capital controls have meant that other means of payment have been in use before, such as the infamous “hawala” system.
• The ease of use and the scope of new Big-Tech cryptocurrencies are about to create global currencies of a completely different class.
• Economists argue that such currencies will affect the exchange rates and monetary policies of traditional currencies. This is because the introduction of a global digital currency removes the capital control levers that sovereign nations have today.

Conclusion

Thus the advent of Big Tech cryptocurrencies means that countries would have one less lever to pull.

GS-III: Genome sequencing of bacteria to help with biocontrol in farming.

Bacteria with antimicrobial properties

• Scientists in Kerala have completed the whole genome sequencing of a rare bacterium capable of producing antifungal and insecticidal compounds.
• This has opened up the potential to develop a new line of products for biocontrol applications in agriculture.

Obtained from soil

Researchers isolated some strains of actinomycetes (a kind of hairy bacteria) from the forest soils of the Neyyar wildlife sanctuary, one of the 12 mega diversity centres in the world.

One of the isolates was identified as Streptosporangium nondiastaticum reported to have antimicrobial properties.

• Helping Biocontrol
• Bioinformatics analysis showed that the genome contained a plant chitinase, an enzyme capable of degrading fungi and insect exoskeleton.
• Scientists have cloned the gene and engineered the recombinant protein.
• The strain can produce metabolites that are toxic to plant pathogens, making it a candidate for biocontrol applications.
• Across the world, fungal phytopathogens cause significant agricultural crop loss, both in farmlands and post-harvest storage conditions.
• The use of microorganisms to control phytopathogens and pests offers an important alternative to chemical fungicides and pesticides which result in environmental pollution and development of resistance in fungal pathogens.