Reserve Bank of India Governor Raghuram Rajan recently claimed that “our world is facing an increasingly dangerous situation” and “what we need are monetary rules that prevent a central bank’s domestic mandate from trumping a country’s international responsibility.” He then issued a call for “a new international agreement along the lines of Bretton Woods” to replace the existing system.
This is a startling demand as he calls for putting the interests of international powers above India’s interests. While he has argued in the past for RBI’s autonomy from the Indian government, he now wants to make it answerable to foreign governments.
His new concern for the global economy developed only after the existing system stopped benefiting those in power in Europe and America. For many decades, the World Bank and IMF worked in tandem as loan sharks and destroyed several economies around the world. While they gave loans to poor countries under stringent conditions, corporations and non-profit groups in Europe and America were awarded free money in the form of contracts and grants.
This arrangement was possible because the World Bank has always been led by an American while the IMF has always had a European as its head.
As long as the Western countries benefited, Rajan was not only fine with the IMF and the World Bank but even worked for the IMF as their Chief Economist. In recent years, with India and China gaining greater financial independence from the two Bretton Woods institutions, the revenues of those who depend on these institutions have come down and the Western banking system is on the brink of a collapse.
This is what Rajan describes as a dangerous situation for the world even though it is dangerous only for European and American bankers. Such conflation of the interests of the bankers with the interests of the world is consistent with the language used by economists from the West whose theories are tailored to benefit a few influential people. When these economists claim that the economy is about to collapse or that the world needs to be saved, what they really mean is that some bankers are in trouble and they should be bailed out using taxpayer’s money.
Rajan now wants to “start building a system” by using “background papers from eminent academics” but every economic crisis in the world can be traced to recommendations made by “eminent academics” and India should not be made to pay for cleaning up a mess it did not create. If the academics really want a stable system, they should advocate gold as the currency without any controls instead of demanding controls in the form of cashless currency, negative interest rates and another global institution that will dictate rules to the world.
Despite heading the RBI, Rajan has retained his job at the University of Chicago which exerts undue influence over global economic policies. The fact that RBI’s governor has one foot planted in a foreign university is problematic, more so as the university’s latest effort has been described as a “halfway house” between the US State Department and pure academics by the head of the Council on Foreign Relations which sets the US foreign policy. This means the university’s faculty members lack independence and publish only those ideas approved by the US government.
Rajan’s support for a new system to funnel Indian money to the West while he is all set to return to the American government’s halfway house is clearly a conflict of interest.