It is well that RBI governor Raghuram Rajan has clarified that he had never meant that the world was facing a Great Depression-like situation. It is significant that what he actually warned against was the policies followed by major central banks around the world, which are in danger of slipping into the kind of beggar-thy-neighbour strategies followed in the 1930s. This beggar-thy-neighbour policy, in economic terms, is described as the international trading policy that uses currency devaluation and protective barriers to alleviate a nation’s economic difficulties at the expense of other countries.
This is exactly what is happening today, and the world saw this in 2013 when the US Fed only suggested that it may start withdrawing its quantitative easing (QE) programme. The asset bubbles created by the Fed’s QE burst, creating minor tremors in all markets, including in India. It is, therefore, important for global central bank authorities — when several countries now have QE programmes and have devalued their currencies to increase exports — to discuss their future actions collectively.
This is what Dr Rajan has been calling for since the crisis of May 2013. Any action by one central bank leads to tremendous instability not only in emerging economies, but in all economies, as he pointed out. Dr Rajan has rightly called for setting new rules for the international monetary system, which even countries like China and Russia have urged. This is especially relevant when, at some point of time, these countries begin adjusting their QE programmes; they should not do so unilaterally.
