| MUMBAI, April 10
MUMBAI, April 10 India's central bank Governor,
Raghuram Rajan, on Thursday proposed the creation of a global
"safety net" administered by a multilateral body such as the
International Monetary Fund that could provide funds for
countries in case of economic emergency.
Providing such cash would ease pressures on countries to
build up currency reserves as defences against any sudden
outflows, said Rajan, endorsing a scheme that has previously
been proposed by the IMF and discussed by policymakers.
Rajan, a former chief economist at the IMF, repeated his
call for central banks to be mindful of the impact of their
policies on other countries.
The Reserve Bank of India governor went on to propose the
appointment of "an impartial international assessor" who could
examine the effects of unconventional central bank monetary
policies on the global economy, although he did call this
recommendation "a little too idealistic."
Rajan's reflections were contained in a prepared speech the
prominent economist was due to deliver at the Brookings
Institution in Washington on Thursday.
"We have to design a better multilateral liquidity safety
net so that countries do not feel they are on their own in
managing market turmoil, and so that they do not build enormous
stockpiles of reserves," the text of the speech read.
Rajan, who took the helm of the RBI in early September, has
previously criticised the U.S. Federal Reserve for not taking
into account the impact of its easy monetary policy on emerging
The Fed's policies, adopted gradually in the aftermath of
the 2008 global financial crisis, had propped up emerging market
assets, but hit India hard last year when investors feared the
U.S. central bank would start unwinding its programme.
The rupee slumped to a record low in late August as
investors feared outflows in a country that depends on foreign
capital to bridge its current account deficit.
Although the actual start of the Fed's withdrawal of its
monetary stimulus in December had little impact on India after
the country took steps to narrow its current account deficit,
the RBI has started buying dollars and bolstering its foreign
exchange reserves since last month to curb volatility in the
rupee after a recent rally.
Rajan said a global safety net would be good policy that
could help limit the need to build up reserves, offering little
credit risk against what he called "extreme balance sheet
policies," without specifying whose policies he was referring
"Multilateral arrangements are tried and tested, and are
available more widely, and without some of the possible
political pressures that could arise from bilateral and regional
arrangements," Rajan said.
"Indeed swap arrangements can be channelled through
multilateral institutions like the IMF instead of being
conducted on a bilateral basis."
(Editing by Rafael Nam and Eric Meijer)