There is a need to bring more countries into the global economic decision making, according to the Reserve Bank of India Governor D. Subbarao.
“The global economic and financial crisis of 2008 exposed critical weaknesses in the structure of the international financial architecture as well as in its governance,” he added.
Global institutions can only be legitimate and credible if their vote share and governance structure reflect members’ share in the world economy, Subbarao said. Subbarao called for fast-tracking the agreement for the International Monetary Fund quota and governance reforms. “We should adhere to the timeline for completing the IMF quota reforms by January 2013, so that it serves as the basis for the 15th general review of quotas to be completed no later than January 2014,” he added.
The Governor also said that reform proposals have been put forward to address the problems arising from a single reserve currency.
“One is to have a menu of alternative reserve currencies, for which a currency has to be fully convertible and its exchange rate should be determined by market fundamentals. The euro has failed on this front.”
The other solutions are to develop the SDR as a reserve currency and expand the SDR basket by including the currencies of emerging economies. “However, even the emerging economies like China were unsure on doing the same.”
The last alternative, he said, is to reduce dependence on a reserve currency in the IMF.
He said that though the solutions do not fully address the issues, we need to explore these and other options for protecting ourselves from the vulnerabilities. “India’s own position on the global reserve currency is that the world will be better served by increasing the number of reserve currencies, but this has to happen in an organic way, not by fiat,” Subbarao said.
Dollar swap facility
Subbarao said that the Reserve Bank of India raised the question of India entering into a dollar-swap arrangement with US Federal Reserve Chief Ben Bernanke during his visit to the country in October.
“They didn’t say yes or no. However, the reservations they have is that the rupee is not a fully convertible currency,” Subbarao said.