VITALINFO: RBI's independence under threat, says former Chief...
VITALINFO: RBI's independence under threat, says former Chief...: Grace Koshie says proposed changes could give the government greater involvement in the Reserve Bank of India’s operational areas; warns o...
Note: This article by Grace Koshie gives hope that we still have members from RBI Family who will speak out in public to protect the prestige of RBI. Will post the text of the article(published version) here, as soon as I get it.
M G Warrier
RBI's independence under threat, says former Chief General Manager
Grace
Koshie says proposed changes could give the government greater
involvement in the Reserve Bank of India’s operational areas; warns
other central banks' legal independence is being ‘altered’...
The Reserve
Bank of India (RBI) is the latest in a string of central banks whose
legal independence is under threat from proposed or actual changes to
its mandate, according to a forthcoming piece in theCentral Banking Journal.
Grace Koshie, a former Chief General Manager and Secretary to the board at the RBI, says de jure independence
is a "necessary" condition for independence as a whole, and warns that
governments may be impinging upon it in a host of countries across the
globe.
In India, the
government created the Financial Sector Legislative Reforms Commission
to "clean up" the country's financial sector legislation. The
commission's proposals would, if adopted, remove the RBI's
responsibility for financial stability.
While the
central bank would retain its role as India's monetary authority and
regulator for the banking and payment systems, the government would
designate a new "unified" regulator for the rest of the financial
sector. The Financial Stability and Development Council, chaired by
India's finance minister, would fill this role.
Moreover,
Koshie notes, the commission has proposed that each of the present
financial regulators are audited by the Comptroller and Auditor General.
Koshie warns this "opens the door" for the governmental body to "look
into" the RBI's operational areas.
In her article, Has the crisis dented central bank independence?,
published tomorrow, Koshie points to three other central banks whose
legal independence is "likely to altered" by recent or forthcoming
amendments to their national central bank law.
The Cypriot
government is in the process of expanding the Central Bank of Cyprus'
board membership to include an additional two non-executive directors.
This will tip the balance of power away from the governor and central
bank staff.
Koshie believes
this change will "seriously undermine the autonomy of the central bank
management under the governor" and "increase the role of the
government/board in internal staff matters".
She also refers
to the Bank of Slovenia where, in August 2012, a string of senior staff
members resigned in the wake of changes to legislation governing the
central bank. Koshie notes that the government was criticised by both
the International Monetary Fund and European Central Bank for its
decision.
Moreover, in
the US, there are repeated attempts from a group of Republican senators
to introduce a bill dubbed 'Audit the Fed'. Rand Paul, a senator from
Kentucky, has threatened to hold up the appointment of Janet Yellen as
the next Fed chair in an attempt to force a vote on the bill.
Koshie
acknowledges that if central banks are to retain their independence,
they must adapt to the post-crisis environment. This means correcting
their flawed models and perceptions.
"Central banks
are back at school, filling up gaps in their knowledge and understanding
of complex markets, players and products," she says. "As knowledge
institutions, their claims to independence as regulators will depend on
their ability to stay up the learning curve."
Koshie outlined
a range of initiatives the RBI has taken to enhance its credibility and
"stake claim for greater operation independence". These include
strengthening its internal research, communicating more proactively with
the general public and conducting outreach activities to expose staff
to more 'real-world' issues.
Note: This article by Grace Koshie gives hope that we still have members from RBI Family who will speak out in public to protect the prestige of RBI. Will post the text of the article(published version) here, as soon as I get it.
M G Warrier
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