Rajan floats 'traffic signal' like control on central bankers

Says India can follow the same rules in about a decade

Proposing ‘traffic signal’ like checks on central bankers, RBI Governor Raghuram Rajan on Tuesday asked them to shun monetary policies that can negatively impact other economies, saying even India can follow the same rules in about a decade.

“By the time any of this actually gets into policy, I have no doubt India will be among the top 3-5 global economies — around 10 years from now — and our monetary policy will also be subject to the same rules,” he said.

Delivering a lecture at the London School of Economics, the former chief economist of International Monetary Fund (IMF) said the policies with zero-to-positive spillover effect for the rest of the world can be given ‘green label’, while those with negative potential impact for others should be labelled ‘red’.

Policies that are negative in short-term but can be positive in longer term can be given an orange label, he said.

Giving the ‘driving analogy’, the outspoken Governor also reiterated his call for “a more internationally responsible global monetary policy that follows rules of the game”.

In his lecture, ‘Rethinking the Global Monetary System’, Rajan called on the world of academia to conduct deeper research and analysis on how such a system could work in a decade’s time.

“We need some element of international responsibility in setting of monetary policy... We need rules of the game based on how policies play out in the short term versus long term, will they have negative effects on the rest of the world or positive effects?” he said.

Explaining his ‘driving analogy’ at length, he said: “Policies that have a net positive impact on a country as well as zero to positive spillover effects for the rest of the world, let’s give it a green label.

“Policies that are a little more uncertain, short-term negative but long-term positive, (are) more of an orange label.

“And policies that may be positive for your country but certainly negative for the rest of the world, now and for ever more, let’’s give it a red label and say countries should shun those kind of policies.

Admitting that the world is “nowhere near” establishing what these policies might be and what colours they could be branded under, the Indian central banker made a call out to the world of academia to step in.