viral acharya: the autonomy concerns of the deputy governor of the RBI, Acharya: 10 points that he held in his speech

NEW DELHI: Viral Acharya, deputy governor of the Reserve Bank of India (RBI), spoke yesterday at the AD Shroff commemorative conference in Mumbai to express her concern over her independence. Supporting his arguments with illustrations, principles and ideas, Acharya pleaded for the central bank's autonomy for the long-term financial stability of the country. His speech also touched on current concerns about the RBI's quick-fix easing regime, its flexible approach to resolving bad debts, and a separate payments regulator, independent of the RBI.

Below are ten key points that Acharya held in his speech:

1. "The decision-making horizon of a government is shortened, like the duration of a T20 match (to use a glaring badogy), by several considerations.There are still upcoming elections, that 39, they are national, regional, mid-term, etc. In the run-up to the elections, it becomes urgent to follow up the proclaimed manifestos of the past and, when the manifestos can not be delivered, the populist alternatives must be arranged with immediacy. "

2. "On the other hand, a central bank plays a test match trying to win each session, but especially by surviving in order to have a chance to win the next session, etc." In particular, the central bank is not directly subject to the policy. time constraints and induced neglect of the future; since they are nominated rather than elected, central banks have decision-making horizons that tend to be longer than those of governments, covering election cycles or periods of war. "

3. "Ramon bank loan losses by compromising control and regulatory standards can create a short-term financial stability front, but will inevitably result in the collapse of the fragile card game in the future, possibly with a larger taxpayer. bill and potential production loss ".

4. "Although this is not always the case, the interventions needed for stable growth are often structural reforms of the government with initial budgetary outlays, however, they can compromise populist spending or require unpleasant historical operators. could seem like a quick fix to the problem – the government needs to ask / instruct / mandate / direct the central bank to pursue strategies that generate short-term gains, but actually create extreme risks for the economy. "

5. "When large parts of financial intermediation do not fall within the jurisdiction of the central bank, systemic risks may appear in the" shadow banking system ", with private gains for a small group of actors, but at substantial costs for future generations, uncontrolled financial fragility ".

6. "Unfortunately, not all politicians are caring, and all of them do not have the patience to wait for long-term gains – not everyone is happy when appointees refuse to comply with their wishes. are not respectful of institutions and inherited agreements, whether it is the central bank, independence or, more broadly, the division of powers ".

7. "While the jury will linger for some time on the economic impact of the flexible inflation targeting framework, it is indisputable that the MBM has given monetary policy an independent institutional foundation." The government deserves a lot of credit for its foresight in legislating necessary changes to strengthen this aspect of the independence of the central bank and distance itself in the process of monetary decision-making (other than through the appointment of external members within the MPC). "

8. "An important limitation lies in the fact that the reserve bank is legally limited to undertake the full range of lawsuits against public sector banks – such as the sale of badets, the replacement of management and the board of administration, revocation of licenses and resolution actions such as – all it can and does deploy effectively in the case of private banks. "

9. "Having sufficient reserves to withstand the losses resulting from central bank operations and having appropriate rules for allocating profits (including the rules governing the accumulation of capital and reserves) is considered an important element of Independence of the central bank vis-à-vis the government (see, for example, Moser-Boehm, 2006) A thorny issue on this front is that of the rules governing the transfer of surplus from the Reserve Bank to the government. "

10. "One last question concerns the area of ​​regulation, the latest example being the recommendation to circumvent the central bank's powers over payment and settlement systems by appointing a separate payments regulator (also covered by Rakesh Mohan in his series, ibid.) Reserve Bank issued its dissent against this recommendation on October 19, 2018. "