U.S. Monetary Policy and Emerging Markets:
Rajan argues that U.S. monetary policy has a significant impact on the global economy. Monetary policy structures were designed for a time when global capital flows were minor. With the return of capital flows, the impact of monetary policy from large economies is more pronounced, especially with unconventional monetary policies.

The Impact of Quantitative Easing:
The first phase of quantitative easing was necessary to address the financial crisis of 2008. However, Rajan believes that the continued reliance on monetary policy after 2010 had limited domestic positive impact and led to negative spillovers. This resulted in asset price increases and credit booms in various countries.

The Challenge of Exit:
Exiting from unconventional monetary policies will be challenging for both industrial countries and developing countries. Rajan acknowledges the difficulty in analyzing the net impact of these policies, but based on observations, he believes there is room for improvement.

Raghuram Rajan’s Perspective:
Rajan emphasizes that the U.S. Fed is acting in its best interests, but questions whether these policies are truly beneficial for the global economy. He calls for a better understanding of the spillover effects of unconventional monetary policies and advocates for a more balanced approach to global monetary policy.

Domestic Mandate of the US Federal Reserve:
The US Federal Reserve is responsible for ensuring the best possible economic outcomes for the United States. Its primary focus is on domestic economic issues and maintaining the stability of the US economy.

Revisit the Domestic Mandate in a Globalized World:
Raghuram Rajan proposes revisiting the domestic mandate of the Federal Reserve in light of the interconnectedness of the global economy. Capital flows across borders rapidly, making it necessary to consider the global impact of US monetary policies.

Limited Domestic Positive Effects of Certain Policies:
Rajan argues that some policies may have limited domestic benefits and can potentially backfire over time. He believes that the US should consider policies that have long-term benefits for both domestic and global economies.

The Example of Ben Bernanke’s “Global Savings Glut”:
Rajan refers to Ben Bernanke’s discussion of the global savings glut in 2005. Bernanke expressed concerns about the impact of emerging markets, particularly China, accumulating large reserves on global demand and US interest rates.

Emerging Markets’ Response to US Monetary Policies:
Rajan emphasizes the risk of emerging markets losing confidence in the US as a reliable economic partner. If the US is perceived as prioritizing its own interests, emerging markets may adopt strategies to minimize their exposure to potential negative consequences. This could include running narrow current account deficits, building reserves, and maintaining competitive currencies.

Critique of Current Economic Policies:
Raghuram Rajan criticized the current economic policies, stating that they are suboptimal and not realistic. He argued that the focus on national interests rather than international cooperation leads to suboptimal outcomes.

Global Spillovers:
Rajan emphasized the global impact of monetary policies, highlighting the harm caused by extremely accommodative policies in advanced economies to emerging markets.

Need for International Cooperation:
He called for more cooperation among central banks and multilateral organizations to address global economic issues. Rajan suggested that the Federal Reserve consider the impact of its policies on emerging economies.

Global Safety Net:
Rajan proposed the creation of a global safety net administered by an international multilateral body to provide support to countries facing economic emergencies.

Critique of the Blame Game:
Rajan criticized the tendency to blame emerging economies for global economic problems, arguing that advanced economies also need to address their own issues. He pointed out that many emerging economies have taken necessary measures to address their economic problems, such as reducing current account deficits and raising interest rates.

Systemic Fragility:
Rajan expressed concerns about the increasing fragility of the global financial system due to the growth of the shadow financial system and the lack of attention paid to the role of monetary policy in the financial crisis.

Lax Monetary Policy:
Rajan cautioned against the excessive use of accommodative monetary policies, arguing that they may have contributed to the financial crisis and are not a sustainable solution to economic problems.

BIS’s Warnings:
Rajan highlighted the Bank of International Settlements’ (BIS) warnings about the risks associated with lax monetary policies, which have often been ignored by central banks.

Economic Emergency:
Rajan’s call for a global safety net and his emphasis on the need to provide for countries facing economic emergencies suggest that he believes another economic crisis may be looming.

Current Economic Uncertainty:
The world faces uncertainty surrounding the exit from ultra-accommodative monetary policies, particularly when interest rates start rising.

Market Response to Interest Rate Rise:
Markets anticipate the rise in interest rates, but the timing is uncertain, leading to volatility in the financial markets. Central banks face the challenge of managing market expectations and preventing a rapid rise in interest rates that could trigger economic instability.

Potential for Economic Crisis:
The potential for an economic crisis is considered low compared to 2007, but certain areas show signs of exuberance. Market volatility is expected as interest rates rise, especially in sectors like junk bonds and covenant light bonds. The timing and extent of market volatility depend on the anticipation and reactions of market participants.

Economic Opportunities and Challenges in India:
India has not fully seized the economic opportunities available, but there is potential for growth. There are low-hanging fruits, reforms, and untapped potential that can be harnessed for economic progress. India lags behind China in terms of job creation, infrastructure development, and urbanization. The gap between India and China is widening, requiring urgent action to address systemic issues.

India’s Economic Growth and Challenges:
India’s economic growth has slowed down but can recover to 7-8% with the right reforms. A democratic environment may lead to slower implementation of projects compared to China’s centralized system. Dialogue and negotiation are essential in acquiring land and implementing infrastructure projects in a democratic society.

Central Bank Independence and Monetary Policy in India:
The Reserve Bank of India (RBI) works closely with the Finance Ministry, leading to positive and constructive discussions. RBI controls financial sector development and monetary policy, while the government supports these initiatives. The central bank maintains independence in setting monetary policy, but considers the economic and political environment.

Objectives and Targets of Monetary Policy in India:
The primary objective of monetary policy in India is to control inflation. The RBI targets an inflation rate of 4% with a 2% band, aiming for price stability. Other considerations include employment conditions, growth, and financial stability.

Inflation and Growth:
Raghuram Rajan emphasizes the need to bring down inflation in India to achieve sustainable growth. High inflation creates domestic problems and puts pressure on the exchange rate. Rajan believes there is no trade-off between inflation and growth. Once inflation is under control, monetary policy can focus on other objectives.

Central Banking in Developing Countries:
Rajan highlights the broader role of central banks in developing countries. Central banks can promote growth by developing the financial sector, introducing new institutions, and expanding financial access. Interest rates may not be an effective tool for those who have not borrowed or have no savings.

Expanding Financial Access:
Rajan identifies expanding financial access as a significant challenge. He emphasizes the importance of using technology to reduce transaction costs and make banking services affordable for everyone. The goal is to provide safe and affordable banking services to even the most marginalized populations.

Leveraging India’s Technological Advantages:
Rajan recognizes India’s strengths in payment system technology. He aims to harness these technological advancements to expand financial access and reduce transaction costs. The objective is to create sustainable bank accounts for even the poorest individuals, ensuring safe payments and remittances.

Addressing Systemic Issues:
Rajan highlights the need to address systemic issues that hinder financial inclusion. He emphasizes the importance of reducing fees and eliminating fraudulent practices that disproportionately affect the poor. The goal is to ensure that laborers and other marginalized individuals can send money back to their villages without losing a significant portion to fees or skimming.

Conclusion:
Rajan believes that expanding financial access through technology and addressing systemic issues will contribute to inclusive growth and economic development in India.

Corruption in India:
Raghuram Rajan acknowledges the existence of corruption in India but emphasizes the need for a proper perspective. He explains that during a period of rapid growth, natural resources that were initially of low value became valuable, leading to a lack of proper institutions to allocate them. Rajan highlights the role of democratic processes, checks and balances, and institutions like the Supreme Court and Comptroller and Auditor General in addressing corruption. He cites examples of clean and transparent processes, such as the recent telecom auction and the issuance of banking licenses, as evidence of the system’s reaction to corruption.

Poverty Alleviation and Growth:
Rajan recognizes that despite India’s economic growth, poverty alleviation has not been as significant as expected. He points out that while the numbers of people living in poverty are still high, there has been substantial poverty alleviation over the last two decades due to strong economic growth. Rajan acknowledges that India’s poverty alleviation record is not comparable to China’s, which has experienced the fastest growth in history. He emphasizes the importance of setting benchmarks and learning from countries like China to achieve higher levels of growth.

Manufacturing in India:
Rajan criticizes India’s failure to create a manufacturing revolution, unlike other Asian economies. He attributes this partly to conscious policy decisions and highlights it as a missed opportunity. Rajan emphasizes the potential for growth in the manufacturing sector and the need to create more jobs.

Missed Boat or Missed Bus:
The lack of infrastructure and competition in manufacturing growth is not a missed opportunity but a potential for future growth with stable government and appropriate actions.

Global Monetary Dilemma:
Creating supranational arrangements to enforce coordination of global monetary policies faces challenges.

Supranational Institutions and Credibility:
Supranational institutions need public trust and credibility among nations to effectively coordinate policies. Clear economic models and outcomes are needed to determine who is in line and out of line, which is currently lacking.

Reform of Supranational Institutions:
Supranational economic institutions, such as the IMF and World Bank, recognize the need for reform to ensure broader representation and equitable governance. Emerging markets need to play an active role in assuming responsibility and participating in agenda setting.

Agenda Setting and Participation:
Emerging markets often react to solutions negotiated in Washington rather than actively proposing different agendas and solutions. There is a need for more forthcoming proposals and debate on alternative agendas from emerging markets.

Involving Other Stakeholders in Monetary Policy:
The importance of involving other stakeholders, beyond central bankers, in the discussion of building global governance in terms of monetary policy is emphasized. The question arises as to who can have a say, advise, or pressure central bankers to work together more effectively.

Current Environment and Challenges:
Rajan emphasizes the sensitivity of politicians to any perception that external entities are influencing US or European monetary policy, given domestic complexities. He believes that it will take time, analysis, and empirical work to understand the consequences and difficulties of international monetary policy coordination.

Central Banks’ Internalization of Policy Consequences:
Rajan advocates for central banks to internalize the consequences of their policy actions on other economies. He suggests moving away from the view that very accommodative and unconventional policies are uniformly beneficial or harmless. He argues that there is a need for more evidence to demonstrate the positive effects of such policies while acknowledging their potential negative impacts.

Long-Term Dialogue and Collaboration:
Rajan emphasizes the importance of initiating a dialogue among central banks to address the challenges of international monetary policy. He believes that this dialogue can lead to further research, discussion, and eventually, in favorable circumstances, a change in who determines monetary policy.

Fiscal and Monetary Policy Coordination:
Rajan acknowledges the importance of fiscal and monetary policies working in tandem for a well-functioning economy. He emphasizes the need for central banks to take action and not solely rely on government efforts in addressing fiscal issues.

Mongolia’s Economic Challenges and Opportunities:
Rajan highlights the challenges faced by Mongolia due to currency depreciation, declining FDI, and reliance on mining revenue. He stresses the importance of appropriate utilization of mineral wealth to avoid the “curse of natural resources” and ensure that it benefits the economy.

Global Monetary Cooperation and the Role of Different Central Banks:
Rajan emphasizes the need for monetary cooperation on a global level, involving central banks beyond the US and China. He recognizes the significant influence of the Fed, ECB, and Bank of Japan in shaping global monetary conditions. He acknowledges that changes in monetary policy by these central banks affect other economies, including India.

Questions Regarding the Role of the Fed and Europe:
Raghuram Rajan emphasizes that the Federal Reserve’s actions impact central banking policies worldwide, indicating a collective effort among central banks. Rajan acknowledges the significance of Europe, highlighting its substantial economic activity and the desire for stronger growth and job creation within the region.

Regulation of Non-Banking Technology Startups in India:
Regarding payment system expansion, Rajan confirms that regulations are already in place for non-banking technology startups enabling payments through SMS or data.

India’s Shadow Banking System:
India does not have a shadow banking problem, but it does have a relatively small shadow banking system.

Importance of Institutional Framework for Sustainable Economic Growth:
Rajan recognizes the crucial role of institutional frameworks in driving sustainable economic growth.

Key Indian Institutions and Their Impact on Growth:
Rajan identifies the lack of transparent institutions for resource allocation as a hindrance to growth, leading to corruption and investigations that slow down government work. He emphasizes the need for more competition within the economy and a level playing field for domestic and foreign institutions, as well as private and public sector entities.

A Younger Generation of Leaders in India:
When asked about the potential for a younger generation of leaders in India, Rajan notes that he is considered relatively young from a Western perspective.

India’s Election:
Younger generation of politicians are standing for election, indicating a generational shift in leadership. The large number of voters in the 18 to 30 age group is having an impact on the elections.

Non-Banking Credit Organizations:
Developing countries are seeing a rise in non-banking credit organizations. Governments and central banks should ensure that these organizations are not flourishing due to regulatory arbitrage or lack of oversight. Light regulation across the board is preferred to avoid leaving areas of the economy unregulated.

Central Bank Coordination:
Central banks should not only focus on optimizing their own economic conditions but also consider the global impact of their actions. Coordinated action is necessary to maximize the potential of the global economy. Post-2008, international financial coordination has become increasingly important for global economic stability.

Audience Poll:
After Raghuram Rajan’s speech, a show of hands indicated that a significant number of attendees felt more confident that international financial organizations are moving towards greater central bank coordination.

Conclusion:
The challenges facing India and the role of central bank coordination in the global economy were discussed. The audience appreciated Raghuram Rajan’s insights and gave him a round of applause.