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Shaktikanta Das To IMF: Don’t Let U.S. Label Others Currency Manipulators

Only the IMF has the power to label a country as a currency manipulator, says RBI Governor Shaktikanta Das.

RBI Governor Shaktikanta Das. (Photographer: Kiyoshi Ota/Bloomberg)
RBI Governor Shaktikanta Das. (Photographer: Kiyoshi Ota/Bloomberg)

Reserve Bank of India Governor Shaktikanta Das said the International Monetary Fund mustn’t allow the U.S. to bilaterally label countries as “currency manipulators”.

The IMF is the only organisation with the authority to give such labels, Das said in his speech at the launch of a book on India’s relations with the fund over 25 years by IAS officer V Srinivas. “A question that crops up is why has labelling become a bilateral prerogative when a multilateral institutional architecture exists for the purpose?”

He said the IMF releases a report on consultations with member countries every year, which undertakes in-depth assessment of members’ economic developments and policies, including exchange rate policies. The consultation report also brings up any event of exchange rate misalignment and multiple currency practices are brought up candidly, Das said. Given this multilateral framework, the overlay of bilateral labelling raises questions, including the role of the IMF itself, he said.

That comes as the Donald Trump administration said it will expand the number of countries it scrutinises for currency manipulation, Bloomberg reported in May, citing people familiar with the matter. The U.S. maintains a watchlist of its trade partners that manipulate foreign exchange policies to gain export advantages, from which India was removed early this year.

Das said it’s important to look at the context in which emerging market economies have been functioning in the past few years to understand the challenges they’re facing.

The nature of shocks faced by these economies, according to Das, have moved from balance of payment strains to full-blown economic crises. Moreover, emerging market economies have also been facing the brunt of spillovers since the global financial crisis, which have amplified sudden surges and sudden stops or reversals in capital flows. To insure themselves against such shocks, emerging market economies have been building up their reserves, which have come at a cost, he said.

“The global order today faces several challenges that will test the skills of the international organisations as well as those of national monetary and fiscal authorities,” Das said. “International coordination has become somewhat weaker in the very recent years. Many advanced economies have been pursuing low interest rate policies for long without perhaps adequate recognition of their adverse impacts.”

A return to lower interest rates in advanced economies poses challenges as leverage has already built up in emerging market economies and the needed deleveraging isn’t complete in many European economies, the central bank governor said. Net private capital flows to emerging markets in the form of direct and portfolio investments also nearly doubled in the post-crisis period, he said, adding this has posed risks to some of these economies.

The world, according to Das, will be looking at IMF to come up with solutions for these problems. However, solutions are turning more difficult to come by as the global economy seems to be moving into a new and unsettling phase in an environment of stressed trade negotiations, rising geopolitical confrontation, and limited policy space and high debt levels in several economies, he said.

“Prudent policies are critical to growth with macro-economic stability,” Das said. “Globally, we need to focus on policy space, judiciously use it and simultaneously undertake structural reforms to improve productivity, innovation and job creation. The coming year will test IMF for its policy advice in these areas.”