- The Reserve Bank of India making a difference in your daily life ***
*Convocation address by Dr Duvvuri Subbarao, Governor of the Reserve Bank of India, at the Sambalpur University, Sambalpur, 24 February 2011.
"...In November 2009, we bought 200 metric tonnes of gold from the International Monetary Fund. This triggered a lot of public and media interest on the rationale of the transaction. In recent years, although there has been significant accretion to our RESERVES, our gold holdings have remained stagnant. This purchase from the IMF helped in raising the proportion of gold in our reserves. Secondly, you will recall how, at the height of the balance of payments crisis in 1991, we had to pledge gold to raise resources. In view of the strategic importance of gold as a RESERVE ASSET, we exploited the opportunity that came our way to buy a sizeable quantity of gold from a reliable, multilateral financial institution at market prices in a single deal...."
"...An important issue we need to decide on is HOW MUCH currency to print. We need to print ENOUGH currency to replace soiled and mutilated notes. On top of that we also need to print ADDITIONAL currency to meet the needs of economic GROWTH. The currency expansion required to support growth depends on a number of variables including the growth rate, inflation rate, the growth elasticity of money and the velocity of money. This is a complex formula, but the important point to understand is that the AMOUNT of currency we need to print IS DETERMINED by the replacement requirement and the economic growth requirement.
As much as the amount of currency to be printed is formula driven in the first instance, the Reserve Bank cannot just “issue” currency. The currency we issue is a LIABILITY of the Reserve Bank. It has, therefore, to be backed by assets. EARLIER ON, the Reserve Bank too WAS part of the theology of the gold standard – the belief that issue of currency should be backed by the gold holdings of the central bank. In fact, the original Reserve Bank Act prescribed a proportional reserve system whereby of the total note issue, at least 40 per cent was to be backed by gold bullion and sterling. Like other central banks, WE TOO HAVED MOVED AWAY FROM THE GOLD STANDARD, and today the ASSET backing for note issue comprises both domestic and foreign securities including gold held by the Reserve Bank...."
- Global imbalances and current account imbalances
Speech by Mr Masaaki Shirakawa, Governor of the Bank of Japan, at the Banque de
France FINANCIAL STABILITY LAUNCH Event, Paris, 18 February 2011.
"...The global imbalance debate contains a host of issues. How much emphasis should be put on adjusting current account imbalances per se? What are the causes of current account imbalances? Does the fact that the largest deficit country provides the key reserve currency delay the adjustment process, as the incentive to reduce deficits is weaker? How much does the fact that some current account surplus countries have fixed or relatively inflexible exchange rate systems influence current account imbalances? THE INTRODUCTION OF NEW RESERVE ASSETS would likely reduce the DEMAND for US dollars, but would it reduce the precautionary DEMAND for reserves, thereby reducing current account IMBALANCES? These issues are closely linked to the broader discussions on the international monetary system and remind us of the original Bretton Woods debate between White and Keynes almost 70 years ago..."
"...In the run up to the recent global financial crisis in the mid-2000s, concerns were raised that a disorderly adjustment would occur through a sharp fall in the value of the dollar and a jump in long-term US interest rates...."
"...This experience, similar to the Japanese experience, also highlights the need to look beyond current account balances and identify what constitutes underlying imbalances. Then the question becomes “How can we identify the imbalances or distortions which could lead to unsustainable global imbalances?..."
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