The Hindu Business Line : No currency yet to replace dollar, says RBI Governor

Mumbai, July 11 Suggesting that perhaps there is as yet no currency to replace the dollar as the reserve currency, the RBI Governor, Dr D. Subbarao, has said it cannot happen by fiat and has to happen on the strength of the dollar.

“In terms of the international monetary order, we are facing a situation where finance is globalised, but we still have regulation at the national level. We need to look at the implications of this for monetary policy, especially for countries with fixed exchange rates and for emerging economies,” he said in an interview with the Central Banking Publications, London.

The challenge for the Reserve Bank of India is to create the stage for 9 per cent growth in an environment of price and financial stability, he said. “For me the single most important objective is returning the economy to a high growth path,” he said in the interview.

Explaining why inflation targeting is neither possible nor advisable for the RBI, Dr Subbarao said that India being largely an agricultural economy, prices are vulnerable to monsoon and adverse weather conditions, and beyond the ambit of monetary policy action. Import prices of commodities, capital flow and the trade channel also influence inflation.

“The Wholesale Price Index (WPI) went into negative territory because a year ago, at this point of time, the administered oil prices were raised. Our negative inflation does not reflect a demand constraint. Far from it, we are a supply-constrained economy,” he said. He reiterated that the current negative inflation is not structural in nature, but only statistical.

India’s domestic consumption at 57 per cent of GDP is relatively high for an economy of our per capita income level. So the important thing for India is to increase investment, especially in infrastructure, and not so much consumption, he said.