Institutional identity of RBI has been damaged: Former Governor Reddy

Reddy was also critical of the way Governor and Deputy Governors is selected.

By: ENS Economic Bureau | Mumbai | Updated: January 10, 2017 9:13 am
 YV Reddy, demonetisation, demonetisation effects, RBI, RBI-demonetisation, demonetisation-RBI credibility, Indian economy, RBI reputation, India news, Indian Express Former RBI Governor YV Reddy. (File Photo)

Former Reserve Bank Governor YV Reddy on Monday said: “The role of central bank in our economy is under threat and it is a national problem which has to be addressed as a national problem”. In an interview to CNBC-TV18 channel, the former Governor also said, “my own suspicion is that the institutional identity of the RBI has been damaged.”

“I would even go to the extent of saying that particularly recent events, I have seen the comments from economists, from Standard and Poor’s and they are disturbing. For the RBI, for a central bank, reputational risk is the worst risk. Credibility is the worst risk. And if this is happening in the international opinion, I would say that it is a national problem now and it is not just a political issue,” Reddy said.

“I think it is time, it is like army which is the security of the country, the financial and monetary security of the country. So, there should be a debate at this juncture given the type of comments internationally cutting across political parties that what should be the nature of central bank and what it should be and how it should be run,” Reddy said.

“The question is that there is a problem of reputation and the reputation cannot be ascribed entirely to individuals. There has been institutional changes and procedural changes which have created confusion about the identity itself and effectiveness and therefore, the reputation. Now, what should be the new structure?” he asked. “There should be better clarity about the new structure. The old framework, whatever the background, which committee, which commission, which judge produced it, we need not go into it. The limited point is, the role of central bank in our economy is under threat and it is a national problem which has to be addressed as a national problem.”

Also Read | Cleared Rs 2000 note in May, no talk then on 500, 1000: RBI

On withdrawal of Rs 500 and Rs 1,000 notes, Reddy said: “Any demonetisation that occurred generally by itself takes care of the currency. It becomes a fight against black money incident because of the incidental benefit of getting information or making it non-valid. So, demonetisation and black money link is not direct, it is indirect and incidental analytically. There are lot of other implications as we go along. At that point of time we had not thought about it.”

On the impact of demonetisation, Reddy said, “I have to be analytical, conceptual, academic and not ex governor, the way I look at it is from a practical point of view, the pain has happened, going forward to the extent possible we would quickly relieve the pain. More important is gain, how do you maximise the gain? In that sense therefore I would say this is the beginning of handling the problem of black money.”

Also Read | On November 7, it was Govt which ‘advised’ RBI to ‘consider’ note ban, got RBI nod the next day

Reddy was also critical of the way Governor and Deputy Governors is selected. “Whatever it is, definitely, I think there is a problem, especially after the legal amendments, the way the Governor is selected, the way they are interviewed basically, let me tell you, if the Deputy Governor has to be selected by an interview by a secretary, I was myself a secretary, I cannot be interviewed by colleagues and juniors for a job. There is no way I would go,” he said.

“At the moment, I think there is a committee where the Cabinet Secretary is the Chair and the Governor is a member. Let me be very frank. I have a feeling that the RBI is treated as a regulator to the confusion at a philosophical level. There are two types of confusion. To be very frank, my own suspicion is that the institutional identity of the RBI has been damaged, let me be frank,” Reddy said.

Of late, there’s more emphasis on its monetary policy, he said. “Earlier, the RBI is the monetary authority, yes. But it is a full service central bank. It was in charge of many other things. The recent emphasis appeared as though monetary policy is the main function. Governor is accountable to monetary policy. Then he is not accountable to regulation, he is not accountable to currency coins? There is a confusion about relative importance. That relative importance is being decided more outside than within,” he said.

“And the final analysis and particularly, for our country, the financial stability function should have been with a non-political set-up like Governor of the RBI. Now, that initiative is gone to the government,” he said.

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  1. U
    USAGuest
    Jan 10, 2017 at 10:34 pm
    Earlier congress president use to control everything.all department heads were treated as head clerks including PM.
    Reply
    1. S
      ss
      Jan 10, 2017 at 4:40 am
      Not long ago, Advani grumbled 'Emergency may come again'. Indeed it has already; although not by means of an ordinance.
      Reply
      1. S
        Sahithi
        Jan 11, 2017 at 4:29 am
        RBI’s insutional ideny has been damaged? Anyone can do one’s job within the recommended guidelines or policies. Many previous governors might have done that. RR is also great. We all loved him. But what did he do? He too limited himself either to ambiguity or could not dare to step out of traditional approach. Why is YVR worried about international experts? Can we not decide what we need? If everyone wants to play safe, who will come forward for the huge reforms required in the best interest of the nation? We support the government/RBI for their endeavours to eradicate black money, counterfeit money and corruption.
        Reply
        1. A
          author
          Jan 10, 2017 at 2:41 am
          "Congress was bad but never an enemy of people like this, Jaitley threatening daily with new rules and false numbers. RBI now stinks" - Yes i agree ravi but all this is thanks to the useless Raul i.He really is useless. Otherwise there is no way Modi would have become the Pm and now that he has - he is ruining all the autonomous insutions. BJP/Congis two sides of the same coin.
          Reply
          1. B
            b
            Jan 10, 2017 at 2:16 pm
            Why is the present still holding on ? Shameless !
            Reply
            1. B
              b
              Jan 10, 2017 at 2:18 pm
              you too don't spread lies, as we are fed up of hearing from top day after day.
              Reply
              1. B
                bishnu
                Jan 10, 2017 at 7:35 am
                All insuion of repute has been politicised so why RBi should be an exception.since the previous governor did not agree to demonitisation idea he was removedand a pliable guy was brought in.if u allow a truck driver to fly a plane u can imagine the plight of pengers sitting inside.
                Reply
                1. C
                  count
                  Jan 10, 2017 at 3:20 am
                  How Pak is serving all this years when there is no manufacturing sector, no proper cultivation as there are no canals or irrigation development, no IT sector like India and their GDP is not more than India's defense budget. It is survived all because of counter fit currency and it is heavily depended on it. No one know how much is the real money and how much fake money is out there. The best way to make it value less and that can be done by demonetization only.
                  Reply
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