The problem with orthodoxy is that it is orthodox. It’s a way of doing things that’s taken for granted. Like, say, having governments own central banks.

This wasn’t always so. The second mother of central banks, the Bank of England, even though its wings went on being clipped, managed perfectly well in private hands from 1694 to 1946. The first mother, the Bank of Sweden (est 1669), was also private.

Central banks became necessary not only to allow the government to borrow easily but also to make sure the debt was repaid. So the City of London got the English king to set up a bank that businessmen would own and control.

This bank would be in charge of creating money. So if the king was unable to pay on time or at all they would simply create the money.

Power curtailed

But once the power of the king was curtailed over time, the governments in England set about gradually clipping the Bank of England’s powers. This went on over the next 200 years. Then in 1946 the Labour Party headed by prime minister Clement Attlee simply nationalised it.

India followed suit in 1949. It had a lot of private shareholders till then. We need to ask now, if only out of intellectual curiosity, if the time has not come to revisit the issue. That is to re-privatise the RBI by reducing the government’s shareholding to 51 per cent. People recoil in horror at the idea. But that’s what orthodoxy is. It’s not known that there are at least a dozen countries where the central bank is not fully owned by the government.

The worry is that private participation will lead to decisions that don’t benefit the country. But the experience since 1955 shows this full government ownership hasn’t been much better because when it comes to borrowing, governments want the lowest rate and the largest borrowing possible.

This is exactly what any private citizen or company wants.

Overall, money gets priced wrongly with a huge cross-subsidy from the private sector and public sector banks to the government. That’s not a good thing at all.