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  3. Rajan’s comments did not imply world facing new Great Depression like 1930s: RBI

Rajan’s comments did not imply world facing new Great Depression like 1930s: RBI

29 Jun 2015 Evaluate

The central bank of India clarifying the Governor Raghuram Rajan’s recent comments that referred to the Great Depression of the 1930s and triggered a major global debate, has said that Rajan did not imply or suggest that there was any risk of the world economy, which is in a steady recovery notwithstanding uncertainties like those in the Euro area, slipping into a new Great Depression. The RBI said in a statement that a section has 'mis-characterised Governor Raghuram Rajan’s remarks at the AQR conference at London Business School on June 25.

In its clarification, the RBI said that the Great Depression (in the 1930s, when there was a severe worldwide economic depression) was a period of great turmoil, caused by many factors and not just beggar-thy-neighbour policies. The RBI, however, added Rajan indeed said that “the policies followed by major central banks around the world were in danger of slipping into the kind of beggar-thy-neighbour strategies that were followed in the 1930s”. Beggar-thy-neighbour here means that a country’s attempts to set right its economic problems tend to worsen the economic problems of other countries.

The RBI further said, “What governor Rajan did say… was that the policies followed by major central banks around the world were in danger of slipping into the kind of beggar-thy-neighbour strategies that were followed in the 1930s.

Rajan had asked central banks from across the world to revisit the “rules of the game” in the international monetary system. “I am not going to venture a guess as to how we establish new rules of the game. It has to be international discussion, international consensus built over time after much research and much action.”

Rajan, the former IMF Chief Economist, who has earlier warned against competitive monetary policy easing by central banks globally, had also predicted the 2008 financial crisis.

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