Is financial repression a designed, planned

policy target or a byproduct ?

• In what extent and manner is the issue connected
to institutional independence and monetary policy
tools?

• Is financial repression a conscious choice or

something one must deal with in order to achieve
other goals?

The questions above is debatable

Financial repression was introduced in 1973 in
order to "disparage growth-inhibiting policies in
emerging markets"(Shaw & McKinnon 1973).

However, what constitutes ‘policy’ has been left

vague and subject to interpretation in a highly
arbitrary manner
Financial repression refers to "policies “
Low interest rate
Monetary expansions
Government regulation
The government has sovereign authority to express and convey its
policies to independent institution
These policies have unintended consequences for both savers and long-
term investors like insurance companies or pension funds
Financial repression as by-product
However Government saw financial repressions as a by-product for expansionary
fiscal policy that consist of:
• Explicit or indirect capping of interest rates (Regulation Q)
• Creation and maintenance of a captive domestic audience that facilitated directed
credit.
• High reserve requirements as a tax levy on banks (Brock, 1989 )
• Capital requirements, thus Banks to hold government debt
• Direct ownership (China or India) of banks or
• Extensive management of banks and other financial institutions (i.e. Japan).
• Restrictions of entry to the financial industry and directing credit to certain
industries through the imposition of capital controls (Beim & Calomiris, 2000).
FR as a Conscious choice or something one
must deal with
• Based on conscious choice a rational, reasonable prudent decision by
Government to use Financial repressions as a means of "ensuring the
health of an entire financial system.
• Critics argue that if this view was true interest rates would be even
lower if it were not for the high government debt ratio (i.e., capital
demand from the government).
• Whiles Free-market economists argue that financial repression
crowds out private-sector investment, thus undermining growth.
• repression' comes to be seen as the least of all evils and
• a “stealth tax” that "rewards debtors and punishes savers