Tag: rajan

Raghuram Rajan, BFSI News, ET BFSI

Banking & Finance

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The onus of promoting sustainable investments should lie with governments and not central banks, which already have significant other policy commitments, said Raghuram Rajan, former Reserve Bank of India governor.

Central banks should steer clear of politically-driven unlegislated areas such as “green” investments, as their mandates of providing financial and monetary stability are already quite wide, Rajan told the Reuters Global Markets Forum on Wednesday.

“Asking the central bank to say you should buy only green bonds, not brown bonds, etc., is asking the central bank to impose its own views on something which is primarily a fiscal matter,” he said.

Rajan, who earlier served as chief economist for the International Monetary Fund, said central banks should instead turn their focus to the financial stability of these green investments and other threats such as crypto currencies and cyber security.

Crypto currencies have a “potential future,” particularly well-regulated stablecoins, Rajan said, but it wasn’t clear what fundamentals were backing their valuations other than a “heady environment,” with easy monetary policy fuelling all asset prices.

Cryptos won’t be “your last resort” in a doomsday scenario, he said. “I would be much more confident about the value of these cryptos once they find proper use cases,” such as an effective means of payment, especially in cross-border transactions.

ON TRACK
Rajan, who is professor of finance at the University of Chicago Booth School of Business, did not expect markets to react in a 2013-style “taper tantrum” as the U.S. Federal Reserve unveils its plan to withdraw stimulus, which he said was unlikely to happen at Jackson Hole on Friday.

“Ideally, the Fed would like to observe as long as possible, (and) … make sure that the economy is well on track towards growth, he said. “Of course, the problem is the Delta variant, plus whatever variants are lurking in the background.”

He expected inflationary pressures in the United States to be transitory, but said prices may remain elevated for longer than expected due to strong wages, unavailability of workers, and additional fiscal stimulus measures.

“Firms are feeling confident enough to pass through price increase … they don’t do that until they think that these higher prices are to stay,” Rajan said.

Referring to India, Rajan said inflation there could rise in the short term as pent-up demand takes hold, resulting in supply-side bottlenecks, but demand will fall over the medium-term due to stressed households and economic scarring from the pandemic.

Central banks in many emerging countries are being proactive and raising interest rates, Rajan said.

“Now, obviously, the RBI (Reserve Bank of India) is watching the data and it will make the decision when it when it has to make it.”



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Raghuram Rajan moots global credit incentive fund to reduce carbon emissions, BFSI News, ET BFSI

Banking & Finance

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Former RBI governor Raghuram Rajan has mooted a global carbon incentive to balance national-level priorities with global needs of protecting the environment.

Mooting a gl0boal credit incentive fund, Rajan said every country that emits more than the global average of around five tons per capita would pay annually into the fund, with the amount calculated by multiplying the excess emissions per capita by the population and the GCI. If the GCI started at $10 per ton, the US would pay around $36 billion, and Saudi Arabia would pay $4.6 billion.

Meanwhile, countries below the global per capita average would receive a commensurate payout (Uganda, for example, would receive around $2.1 billion), he wrote. “This way, every country would face an effective loss of $10 per capita for every additional ton that it emits per capita, regardless of whether it started at a high, low, or average level, he said.

Fairness problem

The GCI also would address the fairness problem as the low emitters, which are often the poorest countries and the ones most vulnerable to climatic changes they did not cause, would receive a payment with which they could help their people adapt. “If the GCI is raised over time, the collective sums paid out would approach the $100 billion per year that rich countries promised to poor countries at COP15 in 2009. That would far exceed the meagre sums that have been made available thus far. Better still, the GCI would assign responsibility for payments in a feasible way, because big emitters typically are in the best position to pay,” Rajan wrote in a column.

Moreover, the GCI would not snuff out domestic experimentation. “Instead of levying a politically unpopular carbon tax, one country might impose prohibitive regulations on coal, another might tax energy inputs, and a third might incentivize renewables. Each one charts its own course, while the GCI supplements whatever moral incentives are already driving action at the country level,” Rajan wrote.

The problem

The least costly way to reduce global emissions would be to give every country similar incentives. While India should not keep building more dirty coal plants as it grows, Europe should be closing down the plants it already has. But each country will want to reduce emissions in its own way – some through taxation, others through regulation. The question, then, is how to balance national-level priorities with global needs so that we can save the one world we have.



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