Swapnil Pawar is a fintech entrepreneur working on bringing blockchain into the mainstream finance. He has been a quantitative finance professional with an experience of over 17 years. He is a keen researcher of macroeconomic theory and its practical applications. His first book (Anatomy of Froth) focussed on the Global Financial Crisis of 2008-09. He writes regularly in various media on finance and economics.
Swapnil is a graduate from IIT Bombay and a post-graduate from IIM Ahmedabad. He lives with his wife, Chhavi, in Ahmedabad.
TBE: Can you tell us a little about your new book, ‘Rethinking Money and Capital’? What prompted you to write this? How did you get the idea of this book?
Swapnil Pawar: I was intrigued by the lack of hyperinflation in 2009 – in the aftermath of the Global Financial Crisis. As you may recollect, major central banks around the world infused a great deal of fiat money in their economies. The conventional theory indicated that this would lead to inflation of over 100%. In reality, it remained muted. That made me ask a few more questions. And so i went down the rabbithole! When i realized that most of the mainstream macroeconomic theory was outdated or just plain wrong, I thought it made sense to rethink the very nature of money and capital.
Rethinking Money and Capital starts with no prejudice and no theory. It simply follows a stock-flow consistent logical approach and persists through the labyrinth of practical modern economic systems. There are banks, central banks, money markets, borrowers, depositors, and so on. It is easy to get lost in the details and fall back upon some widely accepted theory. Instead the approach in the book is to stay with first principles and see where a logical investigation leads. And it does lead to some very interesting inferences!
TBE: You are very experienced on the world stage with currencies and money. It is the world you’ve moved in much of your life. Can you tell, how can we define money? And how effective is it in addressing the problems that plague society as a whole?
Swapnil Pawar: We are used to thinking of money as a constraint. After all, we can only spend what we earn (or borrow). At an individual level, this holds true. However, when one thinks of an entire economy, or even the entire human race, thinking of money as a constraint is illogical, even if intuitive.
Money is simply a measure of relative value of goods and assets. It is a bidding token by which those who have it express their preferences.
The problems that plague our modern society are not exactly problems of scarcity – especially in the developed world. These are problems of efficiency and sustainability. In this context, the capitalist system that held us in good stead over the previous centuries is going to fall seriously short. Keeping money and capital as the supreme constraints for everything we do will only sap our collective vitality. Instead freeing our society from the self-imposed constraints of money tokens will help us ask real questions about how to grow together as a human race.
TBE: People think of someone who works with currencies as being a materialist. Yet, in the book, it sounds as if your interests are towards social change through improving economic policy. How did you come to be interested in this other dimension?
Swapnil Pawar: I grew up in a middle class household, where money was typically a constraint on consumption. Thanks to my education, I could get into well-paying jobs that made me realize that the upside from material consumption is very limited and quickly tapers off after even moderately high incomes.
That made me ask – why are most of us chasing simple maximization of wealth, at the cost of everything else, like health, personal relationships, peace of mind and even our very planet?
The other thing that bothers me in our modern economies is the extremely high and constantly rising inequality of wealth, income, consumption and opportunity. Except for a few that are lucky enough to go to the best colleges and universities, majority is stuck in the same social wrung they are borne in. What is worse, a small minority continues to endlessly accumulate wealth and distort democracy while majority toils without much of hope.
That made me ask – where does this start? Much of it starts with money and capital. So if we want to reform our society, we need to address the question of what and how of money head on.
TBE: Do you believe that cryptocurrencies and other forms of private currency will make a difference in the lives of those living in poverty in the Third World?
Swapnil Pawar: Extremely pertinent question for our times! Short answer is that the current form of bitcoin-like cryptocurrencies are fads perpetuated by a few techno-savvy people with poor understanding of economics.
However, my professional life at present is dedicated to building on this interesting experiment of decentralization and handling of value without intermediaries, for the betterment of the average person.
If we can use blockchain technology to enable wider access to credit, clearer ownership of property, lower cost of remittances, easier access to insurance we can indeed improve the lives of common people with the advents on this front. However, regulators need to take a nuanced view of the technology for that and should stop clubbing all things blockchain as “crypto”.
TBE: Where are we going wrong with our current monetary system? Why shouldn’t people “drive that thing?”
Swapnil Pawar: The current monetary system is a product of the historical evolution of commercial banking and central banks coupled with capital markets. These were always the domains of the very rich and the very powerful. Even today, debate rages on whether central banks should be “free” from political influence – as if central bankers are divine humans who “know better” than elected representatives of people.
Much of this preference of technocracy is based on the strong preference of the currently rich to keep the value of money stable at all costs. While that is by itself an acceptable aim, the second part – ie at all costs – is not. If there is a trade-off in reducing the value of the currency and achieving full employment plus wider dissemination of opportunities, it is a choice for elected governments to make. There should be nothing cast in stone!
Our current system needs revision in theory as well as wider dissemination of that revision. Hopefully this book is a small step in that direction.
TBE: What do you think are the most needed economic reforms in India right now? Are there likely policies that you would consider particularly ill advised?
Swapnil Pawar: A few things are needed urgently.
- An aggressive public works program – funded by a combination of government borrowing, guarantees and development finance institutions (in the form of banks).
- Massive investments in public health and education through health vouchers and school vouchers that leave it to the users to choose service providers from amongst privately run institutions.
- Big boost to scientific research relevant to India – especially rural India.
- Big thrust on exports through active devaluation of Indian rupee and proactive intervention in forex markets to keep it from appreciating if there are current account surpluses.
Particularly ill-advised policies at present seem to be the following
- Reduction of corporate tax rate and increase of personal effective tax rate (through GST)
- A complicated GST structure making it harder for small businesses
- Regulations that are designed primarily for large businesses – including in the context of access to public equity markets, bond markets, banking system.
TBE: What, in your view, is the best way to tackle current economic crisis? What do you think are the biggest ethical issues related to economics that people don’t frequently talk about?
Swapnil Pawar: The best way to tackle the current economic crisis would be to focus less on inflation (unless it rises beyond 15%) and more on adequate growth. The state of public infrastructure is rather poor – even in the developed world. The artificial constraints on government debt and focus on fiscal prudence makes the volatility of private real investment decisions affect the economies more than it needs to.
One of the biggest ethical issue people do not talk about concerns inflation and its fighting by the government. The average person sees price increases and calls it an unvarnished bad. The government then prompts the central bank to raise interest rates and it also looks to cut down spending on discretionary public expenditures like health and education. Unfortunately, this brings about a slowdown that affects the poor the most – as investments fall in response to higher interest rates, the job losses hurt the lowest sectors of the economy the most.
The real losers in inflationary economy are those sitting on government debt and fixed deposits at banks – whom Keynes often called “rentiers”.
TBE: What do you hope your readers take away from this book?
Swapnil Pawar: I hope they take away the overall message that money for an economy is different from money for an individual – and hence it makes sense to use it as a tool of growth at the macroeconomic level, even if intuition seems to suggest that it is a resource.
At a meta level, I hope they develop an attitude of healthy skepticism about grand economic theories being talked about in public domain, much of which is built on ignorance or poor logic.
TBE: How was your publishing experience with Leadstart?
Swapnil Pawar: It was great. This is my second book with them, after “Anatomy of Froth” in 2010 on the global financial crisis.
The Leadstart team has always been very professional and actively involved me in all aspects of the book, well beyond the final manuscript.
TBE: Is there anything you are currently working on that may intrigue the interest of your readers?
Swapnil Pawar: I am looking to explore two themes. Firstly based on my work, i am exploring various aspects of a decentralized economy that is made possible by the new blockchain technology. This include decentralized finance (no banks!), decentralized company structures, DAOs and maybe eventually even direct democracy.
Second theme of major interest for me now is environmental sustainability of our economic organization. Globally we should all be asking how well did we manage to conserve our habitat while earning our livelihoods rather than what was the GDP growth last quarter or earnings jump of this company vs that.
If we don’t pay heed, we may have only money and capital but not much to spend it on in a few decades!