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英国论文网:British and Dutch GDP:The spread of the cri(37)


rupees need to be expanded to foreign currency.
Preserving financial sector
confidence, not monetary easing,
is key
Arvind Subramanian
Peterson Institute for International Economics and
Johns Hopkins University
53
One way to do this would be to hold foreign currency auctions for all domestic
financial institutions to meet either their own needs or those of their corporate
clients that face foreign currency funding pressures. The Fed and ECB responded
to dollar shortages in Europe through extensive swap operations that made available
enormous lines of dollar credit in European markets. The RBI foreign currency
auctions should be held quickly and flexibly so that liquidity can virtually be provided
on tap. The RBI’s foreign exchange reserves have been accumulated for rainy
days, and these are not just rainy but stormy days, justifying their liberal use
today.
If these measures prove inadequate, the government may need to step in to
guarantee the foreign-currency debt of domestic financial institutions. This may
need to be complemented with government re-capitalisation, especially if private
banks are unable to raise capital from private sources within a very short period of
time. India just cannot afford to have financial institutions that are flashing
amber or red in these times.
Moving beyond individual institutions, and given the crisis of confidence, it
may be worth requiring all banks to raise their capital adequacy ratio (CAR) to
about 15–18%, within a short period. If meeting this higher CAR requires additional
government capital injection, that should be seriously considered. Ways
could be found for this capital to be returned to the government once the crisis
subsides. If all banks were seen to be meeting this high standard, it could have a
significant impact in reassuring markets. The rationale for the higher ratio, apart
from the confidence boosting impact, is the more substantive one that banks’
non-performing assets are bound to rise as the economy weakens. An apparently
cushion-providing 15% CAR today could very easily become an 8% CAR within a
short space of time.
Next, it might be worth imposing additional transparency requirements on all
the major banks to reassure investors and the public. Uncertainty in this environment
leads to markets believing the worst. All banks should therefore be required
to immediately clarify and publish key variables of concern, including foreign
currency exposure, especially on the liability side, the extent and sources of
wholesale funding, and exposure to derivatives and other such instruments. A
strong transparency effort, under the RBI’s supervision, could have an important
reassuring function.
Finally, what about exchange rate and monetary policies? On the former, the


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