Starting from the fundamental premise that money is a zero-sum game as every financial asset creates a liability and vice-versa, this book turns monetary theory on its head. By theorizing from first principles and employing rigorous empirical methods, we show that: (i) a loan creates a deposit and not vice-versa, (ii) banks create money but not NBFCs, (iii) the theory of the money multiplier is incorrect, (iv) bank reserves cannot be lent as bank loans, and (v) the “crowding-out” effect depends on whether the government borrows from banks or from households and corporates. We derive a comprehensive equation that describes all the determinants of money, called the V-S equation, to capture the essence of money in an economy.
K. V. Subramanian is a Professor of Finance (currently on leave) at the Indian School of Business (ISB). He has served as an Executive Director at the International Monetary Fund and was the 17th Chief Economic Advisor to the Government of India from 2018 to 2021.
As Chief Economic Advisor, Professor Subramanian conceptualised India’s economic policy during the once-in-a-century COVID-19 pandemic. By correctly identifying COVID-19 as a huge supply-side shock, Professor Subramanian balanced supply- and demand-side measures, transformed fiscal policy to focus on public capital expenditure, and initiated path-breaking reforms to address structural problems. His foresight and vision enabled the Indian economy to emerge with high growth and strong macro fundamentals despite the Ukraine war following the pandemic.
His policy ideas drew on the path-breaking Economic Surveys. He authored Ethical Wealth Creation for a Prosperous India (2019-20), a Strategic Blueprint for India to Become a $5 Trillion Economy (2018-19), and the post-COVID-19 economy using public capital expenditures in infrastructure and healthcare to further counter-cyclical fiscal policy (2020-21). Acknowledging his contributions, the Hon’ble Prime Minister of India, Shri. Narendra Modi, praised his “academic brilliance, unique perspectives on economic and policy matters, and reformatory zeal.”
Professor Subramanian has been conferred the Distinguished Alumnus award by both his alma maters at IIT Kanpur and IIM Calcutta. He holds a PhD from the University of Chicago. His research spanning banking, law and finance, innovation and economic growth, and corporate governance has been published in the world's leading academic journals.
K Vaidya Nathan is an Assistant Professor of Finance (Practice) at the Indian School of Business (ISB). Prior to joining ISB, he was a resident faculty member at the School of Business, University of Connecticut, where he continues to hold a Visiting Faculty position. Before becoming an academic, he worked as an investment banker with JPMorgan Chase Bank in Hong Kong, New York, and Singapore, and has advised financial institutions and corporates in the Asia-Pacific region on hedging and risk management. He specialises in credit derivative, foreign exchange, and fixed income products. He has also advised corporates in the telecom, media, and technology sectors on mergers and acquisitions, divestiture, acquisition financing, capital structure advisory, alternative investments, and debt restructuring. He is also a consultant with the World Bank.
He holds a BTech in Electrical Engineering from the Indian Institute of Technology (IIT) Kanpur and an MBA from the Indian Institute of Management (IIM), Ahmedabad. He is a Chartered Financial Analyst (CFA), certified by the CFA Institute, Charlottesville, and a Financial Risk Manager (FRM), certified by the Global Association for Risk Professionals (GARP), New York. He earned a PhD in Finance and completed a postdoctoral fellowship at the Leavey School of Business, Santa Clara University.
Professor Vaidya Nathan is a regular columnist with the Financial Express (http://archive.financialexpress.com/columnist/k/1). He is the author of two books: Credit Risk Management for Indian Banks (Sage Publications, London) and Credit Derivatives (McGrawHill Education, New York).
He received the Most Outstanding Faculty Award at the University of Connecticut School of Business in 2014 and the ISB Alumni Endowment Research Fellow in 2019. He has previously served as Associate Dean (RCI Programmes) at ISB and was appointed Chairman of the LOCF Committee for Economics by the University Grants Commission (UGC). He is currently Faculty Director-PGP Finance.
