Reserve Bank of India (RBI) Governor Shaktikanta Das has called for an overhaul of the global financial architecture to address the needs of emerging economies and establish fairer frameworks for debt resolution in vulnerable nations. Speaking at the World Bank and International Monetary Fund (IMF) annual meetings in Washington, Das stressed that the current international financial system does not adequately represent the interests of emerging markets, hindering equitable economic development.
A Call for Inclusive Global Financial Architecture
Das advocated for reformed governance structures in global financial institutions, such as the IMF and World Bank, to provide emerging economies with enhanced access to resources and decision-making roles. “The first and foremost priority should be accorded to reforming the international financial architecture by prioritizing inclusive global governance frameworks that better reflect the realities of today’s global economy,” he said, underscoring that the legitimacy and efficacy of these institutions rely on fair representation for all economies.
Das also pointed to systemic risks posed by private capital and non-bank financial intermediaries, like fintech and shadow banking. With these sectors holding significant global assets, Das emphasized the need for better regulations to manage financial instability. “There indeed is a pressing need to improve global financial regulation to manage systemic risks posed by private capital and non-bank financial intermediaries,” he asserted.
The Need for a New Debt Resolution Framework
Addressing the persistent debt issues in low-income and developing countries, Das highlighted that the current debt resolution process is slow, opaque, and insufficiently coordinated. While acknowledging efforts like the G20’s Debt Service Suspension Initiative, he noted that these measures fall short of addressing the scale of the debt crisis. “We need an overhaul of the debt resolution architecture and its refashioning into one that involves both public and private creditors, ensures timely debt restructuring, and links debt relief with sustainable development objectives,” Das said.
The RBI Governor argued that without such reforms, vulnerable countries will continue to face unsustainable debt burdens, posing a threat to global financial stability. He stressed that an effective debt resolution mechanism would involve timely restructuring efforts coordinated among creditors and tie debt relief to sustainable development initiatives, preventing protracted economic crises for debtor nations.
Rising Concerns over Shadow Banking and Fintech
Das also drew attention to the growing influence of shadow banking and the risks associated with decentralized finance (DeFi) and fintech companies. He emphasized that the evolving financial landscape necessitates more robust oversight to prevent financial instability. “The rise of shadow banking and fintech, and the growing footprint of decentralized finance, requires more robust regulatory oversight to prevent contagion effects and ensure financial stability as a global public good,” he said.
As the global economy becomes more digitized, Das warned that countries lacking sufficient digital infrastructure risk falling further behind. He encouraged the G20 and international institutions to foster investment in digital public infrastructure, ensuring cybersecurity and privacy safeguards. This, he noted, would help bridge the digital divide and support equitable economic progress.
Inflation Targeting and the Importance of Food Prices
Responding to calls from economists to remove volatile food items from India’s Consumer Price Index (CPI) to streamline inflation targeting, Das strongly opposed the suggestion. He argued that such a move would render inflation targeting irrelevant for ordinary consumers, as food constitutes nearly 47% of the CPI basket. Das stressed that leaving out food prices from the CPI would make inflation measurements unrealistic, as they would no longer reflect the cost pressures felt by everyday consumers.
“Eliminating food, which accounts for nearly half the consumer inflation basket, would amount to ‘not having a target at all,’” he said, dismissing suggestions to remove food from inflation calculations.
Navigating Economic Fragmentation in a Geopolitical Landscape
Das also expressed concerns over the rising geopolitical tensions that impact economic policies, leading to sanctions, trade restrictions, and supply chain disruptions. This trend, according to Das, is contributing to economic fragmentation as countries seek strategic independence in crucial areas such as energy, technology, and critical minerals.
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“This is causing economic fragmentation, as countries aim for strategic independence in key areas like energy, technology, and strategic materials like semiconductors and critical minerals,” Das noted.
He urged the G20 to take the lead in promoting open, rules-based trade systems, while acknowledging the importance of countries securing their supply chains. To mitigate economic fragmentation, he recommended international cooperation in technology transfer, investment in global public goods, and support for the green transition, which would benefit the global economy and foster resilience.
Das’s Vision for a More Equitable Financial Future
Shaktikanta Das’s remarks reflect a vision for a restructured global financial system that prioritizes inclusivity and fairness for emerging economies. His proposals for an overhauled debt resolution framework, robust financial regulation for new market players, and a realistic inflation measurement approach underscore his commitment to building a more equitable global financial architecture. Through inclusive reforms and multilateral cooperation, Das emphasized that international institutions can better support sustainable development and stability, particularly in times of geopolitical and economic volatility.
