Nature & Environment, Science & Technology

Ophiuchus, the 13th Zodiac sign


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While most people probably make their important life decisions based on, oh I don’t know, common sense and things like that, there are a whole lot of people around the world who do take their star signs and horoscopes seriously, and with more than 25 percent of respondents in a recent survey calling astrology “very scientific”, there’s a big problem here.

NASA did some new calculations and determined there are actually 13 zodiac signs instead of 12, meaning that 86 percent of all people were actually born under a different sign! The 13th zodiac sign is Ophiuchus. It’s pronounced “oh-FEW-kuss.” Ophiuchus has been used in sidereal and Vedic astrology, but is not commonly practiced in the western astrology.

NASA clarifies on their blog that they study astronomy, not astrology. They didn’t change any zodiac signs, they just did the math. Astronomy is the scientific study of everything in outer space. Astronomers and other scientists know that stars many light years away have no effect on the ordinary activities of humans on Earth.

The Babylonians lived over 3,000 years ago. They divided the zodiac into 12 equal parts – like cutting a pizza into 12 equal slices. They picked 12 constellations in the zodiac, one for each of the 12 “slices.” So, as Earth orbits the sun, the sun would appear to pass through each of the 12 parts of the zodiac. Since the Babylonians already had a 12-month calendar (based on the phases of the moon), each month got a slice of the zodiac all to itself.

But even according to the Babylonians’ own ancient stories, there were 13 constellations in the zodiac. So they picked one, Ophiuchus, to leave out. Even then, some of the chosen 12 didn’t fit neatly into their assigned slice of the pie and crossed over into the next one.

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When the Babylonians first invented the 12 signs of zodiac, a birthday between about July 23 and August 22 meant being born under the constellation Leo. Now, 3,000 years later, the sky has shifted because Earth’s axis (North Pole) doesn’t point in quite the same direction.

marc_astrology-enThe constellations are different sizes and shapes, so the sun spends different lengths of time lined up with each one. The line from Earth through the sun points to Virgo for 45 days, but it points to Scorpius for only 7 days.  To make a tidy match with their 12-month calendar, the Babylonians ignored the fact that the sun actually moves through 13 constellations, not 12. Then they assigned each of those 12 constellations equal amounts of time.

While this explanation should clear up any remaining confusion, NASA stresses one major point: Astrology is something else. It’s not science.

Zodiacal signs are of equal length whereas the zodiacal constellations are not equal in length. Whether or not you believe horoscopes are worthwhile, it seems Ophiuchus won’t be disrupting our astrological zodiac any time soon.🙂

Business & Finance

Social Impact Bonds — an innovative approach


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Now making waves in public finance circles are Social Impact Bonds (SIBs). It’s an innovative approach to finance social service programs that combines outcome-based payments and market discipline. They are designed to raise private capital for intensive support and preventative programs which address areas of pressing social need. It is a financial mechanism in which investors pay for a set of interventions to improve a social outcome that is of social and/or financial interest to a government. These are not bonds in the traditional sense. Investors are repaid, based on the level of success that the organization receiving the funding is able to achieve.

The funding concept is a type of “Pay For Success” (PFS) model where private investors invest capital and manage public projects, usually aimed at improving social outcomes for at-risk individuals, with the goal of reducing government spending in the long-term. Because payment is based on results rather than process, there is more room for innovation and greater freedom to demonstrate solutions that work.

The catch is that private investors front all the costs and will be paid back a financial return by the government if and only if social outcomes are improved based on some standard measurement. The profit-motivating component comes from the fact that some of the savings from reduced costs for the government can be used to pay back the investor contingent upon their success. If the social outcome improves, the government repays the investors for their initial investment plus a return for the financial risks they took. If the social outcomes are not achieved, the investors stand to lose their investment.

According to a Federal Reserve Bank of San Francisco paper, although PFS contracts have received widespread attention, there is nothing fundamentally new about governments paying for outcomes. What makes recent PFS initiatives distinctive is that they are focused not simply on creating additional financial incentives for contractors to produce better outcomes, but more broadly on overcoming the wide set of barriers that are hindering the pace of social innovation. For sure, these barriers include a lack of performance focus and outcome measurement, but they also include political constraints that prevent government from investing in prevention, the inability of nonprofits to access the capital needed to expand operations, and insufficient capacity to develop rapid and rigorous evidence about what works.

Under the most common SIB model, the government contracts with a private-sector intermediary to obtain social services. The government pays the intermediary entirely or almost entirely based upon achievement of performance targets. Performance is rigorously measured by comparing the outcomes of individuals referred to the service provider relative to the outcomes of a comparison or control group. If the intermediary fails to achieve the minimum performance target, the government does not pay. Payments typically rise for performance that exceeds the minimum target, up to an agreed-upon maximum payment level. Payments are funded at least partially by the cost savings to government achieved through the improvement in outcomes.

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The intermediary obtains operating funds by raising capital from independent commercial or philanthropic investors who provide up-front capital in exchange for a share of the government payments that become available if the performance targets are met. The intermediary uses these operating funds to contract with service providers to deliver the interventions necessary to meet the performance targets.

In 2010, Social Finance UK launched the first Social Impact Bond in the United Kingdom — targeting reducing reoffending. By linking a social target to financial success, the Peterborough pilot generated worldwide interest in whether innovative finance can make an impact on the world’s most difficult challenges.

Following the announcement of the world’s first SIB in the United Kingdom in 2010, countries as varied as the United States of America, Australia, Canada, Columbia, India, Ireland, and Israel have started exploring SIBs. Proposed projects target social problems ranging from recidivism to homelessness, unemployment, youth outcomes, and early childhood education. 60 SIBs have launched in 15 countries, raising more than $200m in investment to address social challenges, as of June 2016. 4 projects have fully repaid investor capital.

Why do Social Impact Bonds resonate so widely? Social Finance thinks that it is the values of partnership and collaboration, flexibility and responsiveness, and a focus on data, outcomes, and measurement which all stand at the heart of the model. Investors, whose interests are aligned with other partners to achieve outcomes, play a key role. It is exciting to see an idea move from conception, to exploration, to implementation so quickly and so broadly. Most importantly, it’s making positive impacts.

Nature & Environment, Science & Technology

Fainter Harvest Moon tonight


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The full moon known as this year’s Harvest Moon — a moon that appears bigger and brighter than usual due to its close proximity to earth — rises tonight coincided with a minor, penumbral lunar eclipse for many people in Asia and Africa. That won’t happen again until 2024.

Moonrise for several days around the time of the full moon closest to the autumnal equinox occurs nearly at sunset. Before artificial lighting, this gave farmers extra time to cut and move ripened crops. Hence, the full moon closest to autumnal equinox is called Harvest Moon. According to NASA, this can make it seem as if there is a full moon for several nights in a row. Because all this extra light it provided in the early evenings was helpful for harvest crews working long days, it became known as the harvest moon.

The Harvest Moon this year falls in September, although occasionally this title can be bestowed upon the October full moon. That will happen 12 times from 1970 to 2020, occurring next in 2017. The 2016 version of the Harvest Moon comes six days prior to the autumnal equinox, although it can occur as early as September 8 (as it did in 2014) or as late as October 7 (as happened in 1987).

What sets the Harvest Moon apart from other full moons is that it occurs at the climax of the harvest season, so farmers can work late into the night by the moon’s light. This moon rises at about the time the sun sets, and — more importantly — at this time of year, instead of rising its normal average of 50 minutes later each day, the moon seems to rise at somewhat the same time each night. In other words, most nights the moon rises an average of 50 minutes later than it did the day before, but around this time of year that difference is only 30 minutes.

Is the Harvest Moon bigger, or brighter or more colorful? Not necessarily. It’s different every year. But the 2016 Harvest moon does count as a bigger-than-average full moon. That’s because this full moon is near perigee, the closest point to Earth in its monthly orbit. This full moon comes today (September 16) at 19:05 UTC.

The Harvest Moon is undergoing an eclipse of sorts tonight, although this event is not affording viewers much of a spectacle. It’s a “penumbral” eclipse, which occurs when the moon passes through the outer fringe of the Earth’s shadow. Unlike when the moon interacts with the dark umbral shadow of Earth, resulting in a noticeable “bite” out of the lunar disk, a penumbral eclipse at best causes a tarnishing or “smudginess” on the moon at maximum effect.

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The Harvest Moon as seen tonight – shading of the moon was so subtle that it could hardly be noticed!🙂

Because the sun is a large disk rather than a single point of light, our planet’s shadow also has a lighter outer cone, or penumbra, that can also envelop the moon. When this penumbral eclipse happens, it creates a subtle shading of the lunar disk. It needs a telescope to clearly see the effect of penumbra on the moon.

Eclipse began today (September 16) at 16:54:42 (UTC) and will continue until 20:53:59 (UTC). Lunar eclipses look approximately the same all over the world and happen at the same time.

Nature & Environment, Science & Technology

The whispering world of plants: “The Wood Wide Web”


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The notion that plants can “talk” to one another was, until relatively recently, dismissed as fantasy, but the reality of inter-plant communication is now becoming an accepted part of mainstream science. A new study shows that trees of different species can exchange large amounts of carbon via the fungal internet that connects their roots.  Hidden under your feet is an information superhighway that allows plants to communicate and help each other out. It’s made of fungi.

No tree is an island, and no place is this truer than the forest. Hidden beneath the soil of the forest understory is a labyrinth of fungal connections between tree roots that scientists call the mycorrhizal network. Coined by the journal Nature, the term Wood Wide Web has come to describe the complex mass of interactions between trees and their microbial counterparts underneath the soil. The Wood Wide Web, have allowed scientists to understand the social networks formed by trees underground.

The relationship between these mycorrhizal fungi and the plants they connect is now known to be ancient (around four hundred and fifty million years old) and largely one of mutualism — a subset of symbiosis in which both organisms benefit from their association. In the case of the mycorrhizae, the fungi siphon off food from the trees, taking some of the carbon-rich sugar that they produce during photosynthesis. The plants, in turn, obtain nutrients such as phosphorus and nitrogen that the fungi have acquired from the soil, by means of enzymes that the trees do not possess.

The mycelium of a fungus spreading through soil (Credit: Nigel Cattlin / Alamy)
The mycelium of a fungus spreading through soil (Credit: Nigel Cattlin / Alamy)

The implications of the Wood Wide Web far exceed this basic exchange of goods between plant and fungi, however. The fungal network also allows plants to distribute resources — sugar, nitrogen, and phosphorus — between one another. A dying tree might divest itself of its resources to the benefit of the community, for example, or a young seedling in a heavily shaded understory might be supported with extra resources by its stronger neighbours. Trimming the small plants has also revealed that the trimmed, stressed plants can send food to healthy neighbours. Even more remarkably, the network also allows plants to send one another warnings. A plant under attack from aphids can indicate to a nearby plant that it should raise its defensive response before the aphids reach it.

Not everything that is transmitted between plants is beneficial to an individual plant, since toxins may also be transported via mycelial networks. The influence of one plant to influence (usually restrict) the growth of another is termed allelopathy, and functions via chemical messengers, e.g. the production of juglone by walnut trees, which was found to reduce the weight of tomato seedlings by about one-third. The whole system is integrated, holistic and complex, and a new area of research has emerged which aims to understand inter-plant communication at the molecular level. It appears that plants may use a form of “language”, in which different molecules act as “words”, although the precise nature of the dialogue has yet to be deciphered.

The implications of inter-plant communication via fungal networks are potentially far-reaching. For example, forest management (harvesting) practices should involve preserving the Mother Trees to nurture new growth. In agriculture, too, practices that leave the mycorrhizal (mycelial) network intact, are thought to aid the absorption of water and nutrients from the soil, and to improve the ability of plants to resist pathogens. Hence the practices of heavy and deep ploughing, which breaks-up the mycelial networks, have been called into question.

The revelation of the Wood Wide Web’s existence, and the increased understanding of its functions, raises big questions — about where species begin and end; about whether a forest might be better imagined as a single superorganism, rather than a grouping of independent individualistic ones; and about what trading, sharing, or even friendship might mean among plants.

I am reminded of James Cameron’s 2009 blockbuster Avatar. On the forest moon where the movie takes place, all the organisms are connected. They can communicate and collectively manage resources, thanks to “some kind of electrochemical communication between the roots of trees”. Back in the real world, it seems there is some truth to this.

Sources: Scientific American, BBC, Resilience, The New Yorker

Miscellaneous & Offbeat

Paralympians run quicker than Rio gold medallist!


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The Paralympic 1,500m final witnessed a stunning outcome in Rio last night as the top four finishers achieved quicker times than the Olympic Games gold medallist.

Algeria’s paralympian Abdellatif Baka, along with three other para-athletes, recorded times in the in the 1500m – T13 event, which would have been enough to win a gold medal in the main 1500m event during the Rio Olympics. But the Algerian was not the only one to better that of the Olympic field in a T13 class, which caters for visually impaired competitors. There are two other classes for visually impaired athletes in the form of T11 and T12, with the lower numbers indicating a more severe impairment.

Baka won the gold in three minutes and 48.29 seconds, while Ethiopia’s Tamiru Demisse who took silver with 3:48.49 and Kenyan Henry Kirwa (3:49.59), walked away bronze. Fouad Baka, the brother of the gold medallist, finished outside the medals but clocked 3:49.84 – again ahead of the Olympic Games gold time.

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The top four finishers in the 1,500m bettered the time achieved by the Olympic Games gold medallist in Rio2016. (Image: Telegraph)

The feat was made all the more stunning given the fact that the second, third and fourth-placed finishers all recorded times faster than Centrowicz Jr. of the U.S., meaning that four Paralympic athletes had run times fast enough to win gold had they competed in the Olympic Games. Centrowitz Jr. had finished the final in 3 minutes and 50 seconds. Amazing! Hats off to these paralympians!

Our Indian para-athletes have done extremely well in almost all international events. Perhaps even better than our Olympians. They have won a gold medal too in Rio. I salute them for being dedicated and disciplined to achieve the unachievable.

Miscellaneous & Offbeat

Letter gets there by hand-drawn map!


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There are many stories of messages in bottles travelling thousands of miles before being picked up and read, and letters arriving decades after they were posted. But here is a different twist. Today, I read an interesting story published by BBC. This astonishing delivery took place in March and was then not reported until May, when it came to attention of local Icelandic news website, Skessuhorn which noted “anything is possible in Iceland”. The story has now, belatedly, gone viral on social media after a photo of the envelope was posted on Reddit.

Rebecca Cathrine Kaadu Ostenfeld was reportedly surprised when a letter was delivered to the horse farm where she lives with her husband and three children near Búðardalur in the west of Iceland.

Instead of a postal address or a recipient’s name, the sender had drawn a map of where they believed the farm to be, together with the following, in English:

“Country: Iceland. City: Búðardalur. Name: A horse farm with an Icelandic/Danish couple and three kids and a lot of sheep!”

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The sender had also added a further clue to the intended recipient: “the Danish woman works in a supermarket in Búðardalur.”

The letter had been written and sent from the Icelandic capital Reykjavík by a tourist who had stayed at the farm but who obviously did not know the address.

And, extraordinarily, it arrived at the right place. Amazing, anything is possible in the world!

Views & Opinion

Why does time seem to go by more quickly as we get older?


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When we were children, the summer holidays seemed to last forever, and the wait between Durga Puja-Diwali festivals felt like an eternity. So why is that when we get older, the time just seems to zip by, with weeks, months and entire seasons disappearing from a blurred calendar at dizzying speed?

This apparently accelerated time travel is not a result of filling our adult lives with grown-up responsibilities and worries. Research does in fact seem to show that perceived time moves more quickly for older people making our lives feel busy and rushed.

There are several theories which attempt to explain why our perception of time speeds up as we get older. One idea is a gradual alteration of our internal biological clocks. The slowing of our metabolism as we get older matches the slowing of our heartbeat and our breathing. Children’s biological pacemakers beat more quickly, meaning that they experience more biological markers (heartbeats, breaths) in a fixed period of time, making it feel like more time has passed.

time2Another theory suggests that the passage of time we perceive is related to the amount of new perceptual information we absorb. With lots of new stimuli our brains take longer to process the information so that the period of time feels longer. Our ‘sense’ of time is unlike our other senses — i.e. taste, touch, smell, sight and hearing. With time, we don’t so much sense it as perceive it. This would help to explain the “slow motion perception” often reported in the moments before an accident. The unfamiliar circumstances mean there is so much new information to take in. In fact, it may be that when faced with new situations our brains record more richly detailed memories, so that it is our recollection of the event that appears slower rather than the event itself.

But how does this explain the continuing shortening of perceived time as we age? The theory goes that the older we get, the more familiar we become with our surroundings. We don’t notice the detailed environments of our homes and workplaces. For children, however, the world is an often unfamiliar place filled with new experiences to engage with. This means children must dedicate significantly more brain power re-configuring their mental ideas of the outside world. The theory suggests that this appears to make time run more slowly for children than for adults stuck in a routine.

time1So the more familiar we become with the day-to-day experiences of life, the faster time seems to run, and generally, this familiarity increases with age. The biochemical mechanism behind this theory has been suggested to be the release of the neurotransmitter dopamine upon the perception of novel stimuli helping us to learn to measure time. Beyond the age of 20 and continuing into old age, dopamine levels drop making time appear to run faster.

But neither of these theories seems to tie in precisely with the almost mathematical and continual rate of acceleration of time. The apparent reduction of the length of a fixed period as we age suggests a “logarithmic scale” to time. Because the quantities we measure can vary to such huge degrees, we need a wider ranging measurement scale to really make sense of what is happening. The same is true of time.

Logarithmic scales are used instead of traditional linear scales when measuring a large range of quantities. Common uses include the earthquake strength, sound loudness, light intensity, and pH of solutions. It is based on orders of magnitude, rather than a standard linear scale, so each mark on the scale is the previous mark multiplied by a value. On the logarithmic Richter Scale (for earthquakes) an increase from a magnitude ten to 11 doesn’t correspond to an increase in ground movement of 10 per cent as it would do in a linear scale. Each increment on the Richter scale corresponds to a ten-fold increase in movement.

But why should our perception of time also follow a logarithmic scaling? The idea is that we perceive a period of time as the proportion of time we have already lived through. To a two-year-old, a year is half of their life, which is why it seems such an extraordinary long period of time to wait between birthdays when you are young.

To a ten-year-old, a year is only 10 per cent of their life, (making for a slightly more tolerable wait), and to a 20-year-old it is only 5 per cent. On the logarithmic scale, for a 20-year-old to experience the same proportional increase in age that a two-year-old experiences between birthdays, they would have to wait until they turned 30. Given this view-point it’s not surprising that time appears to accelerate as we grow older.

We commonly think of our lives in terms of decades – our 20s, our 30s and so on – which suggests an equal weight to each period. However, on the logarithmic scale, we perceive different periods of time as the same length. The following differences in age would be perceived the same under this theory: five to ten, ten to 20, 20 to 40 and 40 to 80.

I don’t wish to end on a depressing note, but the five-year period you experienced between the ages of five and ten could feel just as long as the period between the ages of 40 and 80.

Get busy, enjoy your life and let the time fly!🙂

H/T: Christian Yates/WEF

Nation & Politics

Met MJ Akbar in Baghdad


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Honourable Minister of State for External Affairs M.J. Akbar is a veteran Indian journalist and author of several books. During his long career in journalism, he launched, as editor, India’s first weekly political news magazine, Sunday, in 1976, and two daily newspapers, The Telegraph and The Asian Age in 1989 and 1994. He has also been editorial director of India Today and The Sunday Guardian. He was the Editor-in-Chief and then Editorial Director of The Sunday Guardian, a weekly newspaper that he founded, until he left to join politics full-time. He has remained associated with leading media houses and periodicals in India including India Today, Headlines Today, The Telegraph, The Asian Age and Deccan Chronicle, among others. I used to love his articles and editorials.

In 2005, King Abdullah of Saudi Arabia appointed him as a member of the committee to draft a ten-year charter for Muslim nations on behalf of the Organisation of Islamic Cooperation.

Mr Akbar is on a visit to Baghdad. The Indian ambassador hosted a lunch reception in the honour of Mr Akbar at his residence in the afternoon. I was also invited at the reception and lunch. It’s an honour to have lunch with such a great personality. Some local leaders, dignitaries, diplomats and businessmen attended the reception. We were six Indians there from Baghdad — three from United Nations Rajesh Shrivastava, the Country Head of Toyota Motors, Vivekakand of DoJo’s, besides me.

India looks to boost ties with three countries in West Asia — Lebanon, Syria and Iraq — during the eight-day-long visit of Mr Akbar. On the last leg of his visit, he stopped in Baghdad. He met the President of Iraq, the Speaker, and the Foreign Minister. The visit is expected to add further impetus to India’s bilateral engagement with Iraq.

The importance of Iraq to India comes from the fact that it is the largest supplier of crude oil to India, having overtaken Saudi Arabia in June, according to a Reuters report. India sources a major portion of its crude oil requirements from the Gulf region that also includes Iran, Saudi Arabia, Kuwait and Qatar.

There was no formal speech. Mr Akbar just mingled with everyone present there and talked with them. There was an arrangement of nice lunch and drinks. The lunch was catered by DoJo’s, a restaurant in International Zone managed by my friend Vivekanand. It was delicious!

It was a nice gathering, but we had to leave soon after the lunch as we went for the reception from our office. It’s an honour for me to have lunch with Mr MJ Akbar.

Views & Opinion

For the Indian girls at Rio


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I received the below post via WhatsApp. I have later on come to know that this wonderful post was written by Rachita Prasad on her Facebook timeline. I am copying it here to salute all the Indian women athletes who participated in the Olympics in Rio. Some of them won medals while a few of them missed it by whiskers. But all of them won hearts of billions.

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They defeated the ultrasound that declared ‘it’ was a ‘she’.
They defeated the nurse declaring in a sombre tone “ladki hai (it’s a girl).“
They defeated murderous parents or even worse those who keep them alive but kill their spirit every single day.
They defeated the odds against them for parents “allowing” her to chase her dream.
They defeated the family pride that wants every Indian child to be a doctor or engineer.
They defeated the school teacher who said “it’s not a girl’s game”.
They defeated bad sports infrastructure and even lack of healthy food needed to fuel the fire.
They defeated a system where overweight foreign travelling officials, who have only played Ludo as a sports, decide her fate.
They defeated the Dada-Nana, who told her “good girls don’t wear short clothes”.
They defeated the Dadi-Nani, who told her not to play in sun and become “kaali-kaluthi (dark-skinned girl)”.
They defeated friends who told her she needs to “control aggression and chill.”
They defeated the pados-waali (neighbouring) Aunty ji who wondered “akele kahan-kahan ghumti hai aapki ladki. (your daughter goes around alone here and there)”
They defeated the million eyes staring at her legs and not noticing the brilliant game she played.
They defeated the Bua jee and Mausi jee, who ask “tum shadi lab karogi? (when will you marry?)”
They defeated the journalist who asked her when she would “settle”.
They defeated the cynics who thought they were pouting and clicking selfies on a fully paid foreign trip.
So dare not take even a slice of her glory by calling her HUMARI BETI!
They have achieved what they have not because of us. But despite us!

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Image Courtesy: ESPN

Dipa, Sakshi and Sindhu have become national idols in a cricket-crazy nation. Over a billion Indians glued to TV to watch them performing and praying for their win for the sports which never evoked much interest in the country. Clearly, women athletes are creating history. Indian women have indeed come a long way in sports since Nilima Ghose and Mary D’Souza, two athletes, joined the contingent in the 1952 Helsinki Olympics.

Hats off to Dipa, Sakshi, Sindhu, Babita, Adity and all other sportswomen who competed with international champions and gave their best. Winning is not everything, but fighting tough is!

Business & Finance

Currency & Power


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We have a global economy, but we don’t have a global currency. Technology is now reaching the point where a common digital currency, enabled by near-universal mobile phone adoption, certainly makes this possible. And however far fetched a global currency may sound, recall that before the first world war, ditching the gold standard seemed equally implausible.

The current system is both risky and inefficient. Different monies are not only a nuisance for tourists who arrive home with pockets full of unspendable foreign coins. Global firms waste time and resources on largely futile efforts to hedge currency risk (benefiting only the banks that act as middlemen).

The major benefit of a global currency is that there would no longer be currency risk in international trade. In addition, no country can no longer use currency exchange as a means to make their goods cheaper on the global market and hence there would be somewhat of a level playing field. The most obvious downfall to the introduction of a global currency would be the loss of independent monetary policy to regulate national economies.

Benjamin Cohen, professor of International Political Economy at the University of California says that power is influence, and it is also the ability to do what you want without having to worry about what others want, according to Cohen. The United States dollar has been a dominant currency because the U.S. economy has dominated since World War II.  What makes the dollar attractive, according to Cohen, is the U.S. financial market. The U.S. dollar offers liquidity advantages that no other does.

Few currencies are able to meet all the demanding economic and political qualifications for internationalization. That is not pessimism but realism. Given the substantial stakes involved, the competition that is at the core of the process of internationalization is bound to be unforgiving.

Currency internationalization alters monetary geography by accentuating the hierarchical relationship among currencies, expanding the domains of a few popular moneys well beyond the jurisdictions of the countries that issue them. The outcome is produced by a sort of a Darwinian process of natural selection, driven above all by the force of competition—much like Gresham’s Law, except in reverse. Instead of “bad” money driving out “good,” as Gresham’s Law traditionally holds, the good money drives out bad. There is nothing irrational about the process. On the contrary, internationalization may be regarded as a quite natural demand response to prevailing market structures and incentives.

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Let’s recall that while under the Bretton Woods system, the U.S. dollar’s primacy was rooted in law, this has not been the case for the past 30 years: dollar usage has continued as a matter of choice. The U.S. dollar dominates the global economy, used in settling trade and investment deals but also held in reserve in vast quantities by central banks in case of a payments crisis. This demand for dollars keeps the U.S. borrowing costs lower than they otherwise would be, reinforcing the country’s economic clout and helping to pay for the world’s strongest armed forces. Its widespread acceptance is partly the consequence of the dominant position of the U.S. economy, but has also been sustained by the following factors:

  • The depth and liquidity of the United States’ financial and forex markets, which remained resilient even during the financial crisis.
  • The U.S. economy’s track record of macroeconomic stability, which bolsters confidence in the dollar’s long term purchasing power.
  • The willingness of the U.S. fiscal and monetary authorities to allow the dollar to be used in international transactions, and to generate sufficient high quality liabilities to meet international demand for assets denominated in dollars.
  • Network effects—the more a currency is used and held, the more useful it becomes, which in turn increases demand for it even more.

The U.S. dollar’s status as the leading global currency gives the U.S. immense political as well as financial clout, but that power risks being eroded — with unpredictable strategic consequences — as the Chinese renminbi and possibly other currencies assume greater prominence.

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Cohen describes what he calls a currency pyramid, which includes the U.S. dollar at the very peak.  It has universal scope and domain.  Potentially the renminbi, China’s currency (a.k.a. the yuan), which is still just a minnow, according to Cohen, but its international use is growing quite rapidly.  It reflects that China has achieved a degree of autonomy that’s almost unprecedented.

Some people would like one world currency, which would come with a great deal of power. While it is interesting to speculate about the future of the international monetary system, and the U.S. dollar’s role in it, the reality is that the current system has proved its resilience while the alternatives have not; and though change is likely over time, it will not happen overnight, or by decree.

According to Cohen, as long as we have a political system that relies on state sovereignty, we’re going to live with an imperfect monetary system and the best we can hope for is international institutions that can help smooth some of the rough edges.

For today’s international monetary system, the perfect – an unattainable single central bank and currency – should not be made the enemy of the good. Working within our existing means, it is surely possible to improve our policy tools and boost global growth and prosperity.