The man for the moment

Raghuram Rajan exudes the confidence to take India through the current crisis and has a nice idea too - to internationalise the rupee

From the first time he arrived at the RBI headquarters a month ago, Raghuram Rajan looked at home – and at ease. In the world of monetary policy, there's no more tougher challenge than to steady a currency that has depreciated more than 23 percent this year. It's like the Everest of the monetary world, especially when there are speculative attacks and big money involved.

In his first conference as RBI Governor, Raghuram Rajan has exuded the confidence that the domestic and international investors will like from any captain in a stormy weather. His past credentials are impeccable. And his experience enormous.

As the chief economist of IMF, he has seen many a crisis in many a countries or at least has had enough time to study a good number of them. He has seen the US economic crisis of 2008 way early in 2005 and when things were exuberant and nobody talked about a crisis.

In his book, Fault Lines, Rajan has not only talked about the structural problems of the US market, but goes further and talks gives a global perspective of how the world's producers and over-savers such as China were financing the world's consumers such as the US. He viewed the US economy from the economic imbalances in the globe.

What is fascinating is that Raghuram Rajan in his first speech as RBI Governor mentioned that the rupee needs to be internationalised. “This might be a strange time to talk about rupee internationalization, but we have to think beyond the next few months. As our trade expands, we will push for more settlement in rupees. This will also mean that we will have to open up our financial markets more for those who receive rupees to invest it back in,” he said.  

It's a theme that is intriguing. The global economic world is too heavily dependent on the dollar, particularly India. We are exporting Indian goods in dollars so that we can buy the oil and other goods in dollars. International trade cannot be done if we don't have dollars, and our economic growth is compromised if the dollars don't come in.

Its a big risk for a country like India when there's a rush on the rupee for dollars. It roils our market like no other, as we have seen.

If some international trade can be done in rupees, that is we pay for some of our imports in rupees, we will not only generate growth in the domestic economy, but it will also relieve us the pressure of earning dollars, or building a dollar-based reserves.

It will diversify India's currency exposure risk so to speak in analyst lingo. It will be interesting to see how this turns out.