Hyderabad: Reserve Bank of India governor Raghuram Rajan has asked multilateral institutions like the International Monetary Fund (IMF) to “exercise their responsibility for maintaining the stability of the global system by analysing and passing careful judgment on each unconventional monetary policy (including currency depreciation).”
“The current non-system is pushing the world toward competitive monetary easing, to no one’s ultimate benefit. Developing a consensus for free trade and responsible global citizenship – and thus resisting parochial pressures – would set the stage for the sustainable growth the world desperately needs,” Dr Rajan wrote in his article on Project Syndicate.
In his yearend article, Dr Rajan wrote: “As 2015 ended, the world boasted few areas of robust growth. At a time when both developed and emerging-market countries need rapid growth to maintain domestic stability, this is a dangerous situation.”
He said that the effectiveness of unconventional monetary policy — as done by the US and other developed economies — in boosting domestic investment and consumption is mixed.
Claiming that European leaders were reluctant to unpopular steps to fix the economy, Dr Rajan wondered why can’t developed countries settle for lower growth especially when their per capita income is already high.
Another way to boost global growth according to Dr Rajan is to boost exports by depreciating their currency and emerging markets should be funded by developed world to buy their exports.
However, he said it would be difficult to convince emerging markets to accept this model after bitter lessons learnt from 1990s crisis against relying on foreign capital.
