On April 10, 2014, Reserve Bank of India Governor Raghuram Rajan gave a speech at the Brookings Institution in Washington called “Competitive Monetary Easing: Is it yesterday once more?” His message — central banks were conducting experiments in monetary policy with little regard for the impact on other countries — didn’t go over well with his brethren. Policy makers who spend considerable time at meetings of the G20, the Bank of International Settlements and the Financial Stability Board disliked being accused of insularity. Ben Bernanke, recently retired as chairman of the U.S. Federal Reserve, rose from the audience and dismissed Rajan’s critique as simply that of someone who is, “very skeptical about unconventional monetary policy.”
Rajan was undeterred by Bernanke’s putdown. He told me later that week in an interview that Bernanke’s idea of consultation was little more than “information sharing.” Two years later, Rajan still is making the case for a systemic approach to avoiding negative spillovers from monetary policy. He has written a few op-eds and given more speeches. And on March 29, he did what every committed intellectual does when he or she has a point to make: He published a paper. Rajan, with Prachi Mishra, an adviser in the RBI’s research department, has coalesced his thinking on negative spillovers in a 29-page Reserve Bank of India working paper called “Rules of the Monetary Game.” The work isn’t the final word on the subject. But it represents some of the clearest thinking on how the current “non-system” of international finance could be turned into something a little more orderly to emerge in several years. It will be harder this time to shrug off his critique.
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