Mumbai: Reserve bank of
India (RBI) governor Raghuram Rajan on Monday said that the world is facing
"increasingly dangerous situation" and that a new international agreement
on the lines of Bretton Woods is needed to prevent central banks from adopting
policies that could hurt other economies.
He said: “What I have
in mind (is that we) will eventually require a new international agreement
along the lines of Bretton Woods, and some reinterpretation of the mandates of
internationally influential central banks.” “If so, what we need are monetary
rules that prevent a central bank’s domestic mandate from trumping a country’s
international responsibility,” he further added.
Rajan explained that
all monetary policies have external “spillover” effects and circumstances today
are not normal and domestic demand may not respond to unconventional policy.
The Bretton Woods
conference led to the setting up of the International Monetary Fund (IMF) and
the World Bank. He said that to bring growth back to the pre-2008 levels, the
remedy may be to write down the debt to revive demand.
“It is uncertain
whether write-downs are politically feasible or the resulting demand
sustainable. Moreover, structural factors like population ageing and low
productivity growth—which were previously masked by debt-fuelled demand—may be
hampering the recovery,” Rajan said. Politicians, he said, know that structural
reforms to increase competition, foster innovation, and drive institutional
change are the ways to tackle structural impediments to growth. “But they know
that, while the pain from reform is immediate, gains are typically delayed and
their beneficiaries uncertain,” Rajan added.
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