See: Why RBI's complaint can lead to more stress in the economy

US President Donald Trump "may regret" appointing Jerome Powell to the presidency of the US Federal Reserve. He was answering questions about the growing tension between the US central bank and the government over the Fed's interest rate policy. Alternate Prime Minister Narendra Modi for Trump, Urjit Patel for Powell, and Reserve Bank of India (RBI) for the Fed, and that's what you have. After Friday's speech by RBI deputy governor Viral Acharya, the government must be furious the day he named Patel governor of the RBI.

The tension between elected governments and unelected central banks is not new. In the United States, Trump is heard and Powell, despite considerable provocation, has shown restraint. In India, it is the opposite. The Iranian Government, although less and less (and with some justification) dissatisfied with RBI, has not publicly expressed its dissatisfaction. But that did not hold back RBI.

Another bad choice
The speech may have been delivered by Deputy Governor Acharya. But it is unimaginable that he said what he had done without Governor Patel's approval. Reading between the lines, it's almost as if Patel had been shooting from his assistant's shoulder for less than two years.

If Acharya had pleaded for the independence of the central bank or defended the rather mixed record of RBI, posterity could judge him kindly. The argument for operational autonomy – as opposed to blanket coverage – has never been disputed. But by launching a thinly veiled attack on the Iranian government and taking into account the threat of the market, regardless of the timing and context, Acharya did a distinct disservice, not only to RBI but also to the country.

To add insult to injury, he compared India to Argentina, a country that has defaulted seven times on its international debt and five times on domestic debt since independence from Spain in 1818. That contrast with the impeccable record of India.

At a time when increasing geopolitical tensions and US oil sanctions threatening Iran threaten our already fragile external sector and macroeconomic and financial stability, it is difficult to understand why Acharya chose to unleash the very consequences against which he he warned himself. It would not be surprising if foreign investors react by going out when the markets open today.

But let me go into the details, the three main points of contention raised by Acharya, two of which are very technical: the limited control of RBI on public sector banks (PSB), the need to protect its balance sheet and the proposal to create a separate payments regulator.

On PSB, there is enough historical evidence to say that RBI does not suffer from a lack of power. On the contrary, it enjoys much more weight with public service agencies, each of which has a representative on the board of directors, and forced marriages to bail out troubled banks have invariably been imposed on public and non-private banks. . The truth is that RBI representatives have little to show their presence, that private sector banks are not much better off than their counterparts in the public sector and that RBI has failed to halt the corporate rottenness non-bank financing (NBFC).

Advocacy for insufficient powers vis-à-vis PSBs must be considered as what it is: an attempt to deflect criticism of sleep asleep.

In the balance sheet of RBI, the image is more complex. While it is undoubtedly important that RBI has a solid balance sheet, a substantial portion of the central bank's revenue comes from seignorage – the difference between the face value and the cost of printing the motto.

RBI, take notes
It flows directly from its note-issuing authority, and in many countries it is fully transferred to the government. Thus, even if it is justified to build reserves, it is also valid to define clear rules for determining the amounts to be transferred to the government and those to be devoted to the creation of reserves.

RBI, for example, does it need a contingency reserve as important? Could he learn, instead, from the same US Fed who praised Acharya's praises? After the Lehman Brothers crisis, the Fed's action in the United States – "quantitative easing" – was only funding the deficit. Even if it does not go that far, can the RBI take a more nuanced and less confrontational approach to the reserves?

As part of the establishment of a separate payments regulator, this is now only a draft proposal. Yes, the governance of payment and settlement systems is one of the main responsibilities of most central banks. But there are other models, especially in the United States and Canada. In any case, the subject is so obscure that it does not lend itself to public debate and could have been resolved through discussions with the Ministry of Finance.

If only Acharya had paid attention to the former governor of the RBI, YV Reddy. "There is no general independence. RBI is independent; within the limits set by the government, "said Reddy. That's how it should be. Admittedly, governments all over the world tend to define their policies in the light of the upcoming elections, while central banks have longer delays. However, it is preferable to amicably resolve the differences resulting from this problem of time inconsistency in closed meetings and not through a virtual mob.

In a democracy, governments, not unelected central banks, are accountable to the people. Good central banks recognize it and accept it everywhere, and do not try to push the envelope to such an extent that it could upset all concerned.