Governor of the Reserve Bank of India, Raghuram Rajan, has called for developing a consensus among countries for free trade, open markets and responsible global citizenry.
Analysing a host of economic problems and issues in industrial countries and emerging economies, Dr. Rajan said “we need stronger well-capitalised multilateral institutions with widespread legitimacy, some of which can provide patient capital and others that can monitor new rules of the game.” He added that “if we can achieve all this even as recent economic events make us more parochial and inward-looking, we will truly have set the stage for the strong sustainable growth we all desperately need.”
Addressing the 65th anniversary oration of the Central Bank of Sri Lanka here on Monday, Dr. Rajan highlighted how each country, in its drive to boost its economic growth, sought to indulge in unconventional monetary policies and, in the process, pull growth from others.
“We are being pushed towards competitive monetary easing and musical crises,” he said, delivering the oration on the theme of “the global financial system and rules of the game,”
Expressing concern over weaknesses in international monetary policy, he termed the current situation as a “source of substantial risk, both to sustainable growth as well as to the financial sector.” He pointed out that this was not a problem unique to the industrial countries or the emerging economies but a “problem of collective action.”
He urged multilateral institutions such as the International Monetary Fund (IMF) to re-examine the rules of the game for responsible policy, and develop a consensus around new ones. “No matter what a central bank’s domestic mandate, international responsibilities should not be ignored. The IMF should analyse each new unconventional monetary policy (including sustained unidirectional exchange rate intervention), and based on their effects and the agreed rules of the game, declare them in- or out-of-bounds,” he added.
