Reserve Bank of India's Governor Calls for Abandoning Global Monetary “Non-System”

March 22, 2016

Governor Raghuram Rajan of the Reserve Bank of India (RBI), India's central bank, a trained electrical engineer, in a commentary with the Project Syndicate Monday, has strongly criticized the central banks of developed countries, pointing out that

“our world is facing an increasingly dangerous situation. Both advanced and emerging economies need to grow in order to ease domestic political tensions. And yet few are. If governments respond by enacting policies that divert growth from other countries, this 'beggar my neighbor' tactic will simply foster instability elsewhere. What we need, therefore, are new rules of the game.”

In his commentary, Rajan said what he has in mind

“will eventually require a new international agreement along the lines of Bretton Woods, and some reinterpretation of the mandates of internationally influential central banks.... Setting the rules will take time. But the international community has a choice. We can pretend all is well with the global monetary non-system and hope that nothing goes spectacularly wrong. Or we can start building a system fit for the integrated world of the 21st century,” Rajan said.

Rajan, who in 2005 had warned about the growing risks in the financial system pursued by then-Federal Reserve chairman Ben Bernanke, at the time had proposed policies that would reduce such risks, at the Federal Reserve annual Jackson Hole conference. As a result, he was ridiculed by Larry Summers, who said the warnings were “misguided” and called Rajan a “Luddite.” At the time, Rajan was teaching at the University of Chicago.