Shaktikanta Das, Governor of the Reserve Bank of India (RBI), said Tuesday that the central banks must be ready to face the crises of the 21st century.
“Central banks have traditionally acted as guardians of a country’s macroeconomic and financial stability,” Das said. “They must be prepared to face the crises of the 21st century.”
Das made the remark while presenting the inaugural Himalaya Shumsher Memorial Lecture on “Central Banking in the 21st Century: Changing Paradigm” in Kathmandu on Tuesday, September 24.
The First Governor of the Nepal Rastra Bank (NRB) Himalaya Shumsher Rana, who is considered to have pioneered the development of the country’s banking system, passed away last year on February 5. Rana served as NRB’s governor from 1956 to 1961.
He is credited to have brought the Nepali currency into wider circulation and played a crucial role in determining the exchange rate with India.
Governor Das was invited as a special guest in the event by the NRB’s Governor Maha Prasad Adhikari.
In his address, Das emphasised the unique relation the people as well as the central banks of the two countries share, adding that a strong banking sector can help a country overcome significant financial crises.
“Because central banks have become stronger in recent years, they have been able to defend against global financial crises,” said Das. “Though the Covid-19 pandemic has weakened the global economy, banks managed to defend against economic crises, control inflation and maintain financial stability.”
Effective coordination between monetary and financial policies for overall economic development will be the key to meet the challenges in the coming days, Das added, urging central banks to work toward this goal.
The RBI Governor also stressed the challenges posed by climate change in recent years. Effective cooperation with other government agencies will be crucial to address these issues, he said.
Das also shared how modern technology has helped India to meet its financial goals in recent years and will play a more significant role in the coming years.
“During times of crisis, such as the COVID-19 pandemic, India and a few other countries leveraged digital financial infrastructure (DFI) for targeted transfer payments,” said Das. “Technology has enabled India to achieve levels of financial inclusion in less than a decade that would have otherwise taken several decades or more. DFI, therefore, offers great potential for the future.”
The emerging market economies have been demonstrating greater resilience than in the past, Das said, pointing out several challenges and opportunities the advancement in Artificial Intelligence, climate change and geopolitical factors among others will present in front of the central banks this century.
“Despite the new risks, they will also offer opportunities for growth and innovation,” Das said. “Innovation in artificial intelligence, if well supervised and properly harnessed, can enhance productivity and reduce costs.”