Rajan for new global pact |
Reserve Bank of India (RBI) Governor Raghuram Rajan said that the world needs a new international agreement on the lines of Bretton Woods that created the current multilateral financial system, to prevent central banks from adopting policies that could hurt other economies. If so, there is need for monetary rules that prevent a central bank’s domestic mandate from trumping a country’s international responsibility.He said that central banks in developed countries find various ways to justify their policies, without acknowledging that the exchange rate may be the primary channel of transmission.He said the world is facing an increasingly dangerous situation and both advanced and emerging economies need to grow in order to manage domestic political tensions.If governments respond by enacting policies that divert growth from other countries, this ‘beggar my neighbour’ tactic will simply foster instability elsewhere. What we need, therefore, are new rules of the game, he said. Rajan had predicted the 2008 markets crash caused by the housing market crisis in the US that put its economy into deep recession setting off a global slowdown. In 2011, he published the acclaimed “Fault Lines” on how hidden financial fractures threaten the world economy.
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