Manmohan Singh and Collateral Velocity
The Creator of Collateral Velocity
Manmohan Singh is among the most knowledgeable contemporary thinkers in capital markets, especially in Monetary Policy. In a single conversation, we covered many topics, including Stablecoins, Emerging Market Debt Syndication, Collateral Velocity, and what he says is the best way to think about it, especially as the digital era dawns upon us: “Money as a spectrum”, or moneyness.
I was immediately drawn in by his unique takes on the market and his ability to articulate the complexity simply. To tell the story, I think it’s best to begin with his early career.
Eastern Europe and Emerging Market Debt Syndication
Manmohan Singh graduated from Allegheny College in 1988 with a B.S. in Economics and Mathematics (magna cum laude), and finished his education with an MBA (1990) and a PhD (1994) from the University of Illinois Urbana-Champaign in Economics and Finance, while advising the Ministries of Finance and central banks of Hungary and Poland (1992). Shortly after, he worked in Amsterdam, pricing and syndicating Emerging Market debt globally, gaining unique experience of seeing many former USSR countries navigate global markets for the first time as sovereign nations.
International Monetary Fund and Collateral Velocity
After having a front-row seat to many emerging nations’ premieres on the international stage, Singh transitioned to working for the International Monetary Fund (IMF), where he gained a unique perspective on the global financial system, with a particular focus on Monetary Policy, Central Banking, and Collateral. During his tenure at the IMF, he wrote his cornerstone text, “Collateral Markets and Financial Plumbing,” coining the term Collateral Velocity.
Singh argues that while traditional economics focuses heavily on the money supply (such as M2) to gauge the health of the financial system, a critical component of the global economy remains largely in the shadows: primarily the flow of financial collateral (also known as Collateral Velocity). For the global liquidity picture, one needs to incorporate financial collateral that is re-used in the markets by pledging, alongside money.
A definition of Collateral Velocity (without going too technical):
Collateral Velocity = (Total Pledged Collateral Received by Dealers) / (Collateral from Primary Sources)
Singh’s point is that the total financial plumbing system requires a slightly more complex view on money supply, and we can call this the global economy’s “Financial Lubrication”:
Financial Lubrication = Money Supply (M2) + (Source Collateral x Velocity)
Obviously, I make my commentary from a layman’s point of view, but the insights from these two concepts alone create a lot more room for discovering the true impact of Central Banking QE and QT, because the initiatives of QE create a situation of zero-velocity for High-Quality Liquid Assets (HQLAs) that are taken out of market circulation.
Post-IMF and the Journal of Financial Markets Infrastructure
After his extraordinary tenure at the IMF (almost 26 years), Manmohan tells me he has recently been enjoying some time with his daughter before she heads to college. Singh continues writing and serves as Editor-in-Chief of the Journal of Financial Markets Infrastructures (JFMI), where he contributes to current market trends, including stablecoins, debt markets, repo, and financial plumbing. The innovative thinking behind Collateral Velocity and his views of money carry through to new technological breakthroughs because the underlying economics remain the same.
With many interesting questions and innovations rising through stable-coin use as collateral, I expect to see continued brilliant contributions from Manmohan Singh and look forward to following his career and writings.