Friday, June 26, 2015

Head of Reserve Bank of India Again Calls for New "Rules of the Game"

We ran an article earlier here on the blog where Raghuram Rajan said that new "rules of the game" are needed for the international monetary system. In this new article he repeats that and adds a little more detail. Below are some quotes from the article related to his comments on rules of the game.


. . . . . 

"Their (Central banks) zero lower-bound interest rates are distorting markets and countries are turning protectionist, which may require the IMF to take up the role of an international regulator."

"We need rules of the game in order to effect a better solution," the Press Trust of India cited him (Rajan) as saying. "I think it is time to start debating what should the global rules of the game be on what is allowed in terms of central bank action. I am not going to venture a guess as to how we establish new rules of the game. It has to be international discussion, international consensus built over time after much research and action." 

. . . . .

"Rajan has in the past has been vocal about the need for IMF intervention. "The bottom line is that multilateral institutions like the IMF should re-examine the 'rules of the game' for responsible policy, and develop a consensus around new ones," Rajan told an audience in New York on May 19. "No matter what a central bank's domestic mandate, international responsibilities should not be ignored." 

My added comments:

In this article Mr. Rajan also offers some comments on the easy money policies that have been in use by Central banks and talks about his concern that "currency wars" are in progress. He compares the situation to events that led up to the Great Depression in the US in the 1930's.

The key to take from his comments is his call for the IMF to step in at the global level. First, India is a BRICS nation so this again shows the intent to stay engaged with the IMF. Next, please note that Mr. Rajan is calling for more authority for the IMF and not less.

Update 6-30-2015: Central Bank of India clarifies the comments made by Mr. Rajan in the article quoted above. From this new article:

In a statement, Reserve Bank of India general manager Alpana Killawala said the press "mis-characterized" Rajan's remarks:
"The Great Depression was a period of great turmoil, caused by many factors and not just beggar-thy-neighbour policies. Governor Rajan did not imply or suggest that there was any risk of the world economy, which is in steady recovery notwithstanding uncertainties like those in the Euro area, slipping into a new Great Depression."

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