Kosal Discussion and Development Forum

Dr. Subbarao talks about currency wars at the convocation of Sambalpur University

February 25, 2011 at 6:43 pm sanjibkarmee Leave a comment

Following report is from TOI:

MUMBAI: The Reserve Bank of India has taken a stance that India will not be part of currency wars and will let exchange rate be determined by market fundamentals.

“We believe that it is in our collective interest as global citizens if exchange rates are allowed to be determined by market fundamentals,” said RBIgovernor D Subbarao at the Convocation of Sambalpur University on Thursday.

“You all probably heard of ‘currency wars’ -a situation where countries indulge in competitive devaluation of their currencies for trade advantage. That can lead to global imbalances of several kinds. In the Reserve Bank, our policy is that we do not target a specific exchange rate or a rate band. We intervene only to smoothen exchange rate volatility and prevent disruptions to macroeconomic stability,” said Subbarao. The governor added that one of the important issues on the agenda of the G-20 nations, of which India is a part, is to reach an agreement to end currency wars. “That is to reach a shared understanding on what types of interventions may be appropriate to manage the external sector and under what circumstances,” said Subbarao.

Ironically, the governor’s comments came on a day when the rupee recorded a sharp fall following equity sales by foreign institutional investors. Oil prices also came under pressure because of a rise in oil prices and increased demand from oil companies. The domestic currency which closed at 45.12/13 against the US dollar on Wednesday touched a one-week low of 45.48/50 on Thursday.

The governor said that whenever the rupee appreciates, there is a call for RBI to intervene and bring the exchange rate down. “But depreciating the exchange rate by intervention is not a completely benign option. It hurts importers who need to spend more. It hurts the government as it has to spend more on subsidizing imports such as oil and fertilizers and also spend more on external debt servicing. Intervention can also fuel inflationary pressures in which case it hurts everyone,” said Subbarao.

Entry filed under: Region watch, Sambalpur, Sambalpur University, Universities.