New Delhi: RBI Governor Shaktikanta Das on Monday said it is well recognised that India has done remarkably well in growing digitalisation of financial services as it has enhanced the efficiency of the financial sector across the globe, but at the same time, it has brought in several challenges which central banks have to deal with.
For instance, in the modern world with deep social media presence and vast access to online banking with money transfer happening in seconds, rumours and misinformation can spread very quickly and can cause liquidity stress. Banks have to remain alert in the social media space and also strengthen their liquidity buffers, Das said addressing a conference ‘Central Banking at Crossroads’.
India has developed a world-class digital public infrastructure (DPI), which has facilitated the development of high-quality digital financial products with enormous potential for cross-border payments.
India is now home to the world's third most vibrant startup ecosystem, with over 140,000 recognised startups, more than a hundred unicorns, and over USD 150 billion in funding raised. India’s experience in DPI can be leveraged by other countries to improve and usher in a global digital revolution.
India is one of the few large economies with a 24x7 real time gross settlement (RTGS) system. The feasibility of expanding RTGS to settle transactions in major trade currencies such as USD, EUR and GBP can be explored through bilateral or multilateral arrangements.
India and a few other economies have already commenced efforts to expand linkage of cross-border fast payment systems both in the bilateral and multilateral modes, Das said.
Das focused in three areas of Central Banking – Monetary Policy, Financial Stability and New Technologies.
In the realm of monetary policy, central banks have been successful in bringing inflation closer to targets. Major financial collapses or recessions, seen during earlier episodes of crisis, have been averted, he said adding the central banks are now at the forefront of technological innovations and are driving them through sandboxes, innovation hubs and hackathons.
On financial stability, Das said it is the essential reason why central banks exist. Price stability as a central bank objective is of more recent vintage.
Citing an example when central banks were confronted with inflation surges in 2022 in the shadow of the war in Ukraine, they reacted with one of the most aggressive and synchronised tightening of monetary policies in history.
This resulted in risks to financial stability, especially when these risks morphed into banking crises in certain countries in March 2023 and sell-offs in financial markets in August and September 2024.
These developments have once again brought to fore the role of central banks in securing and preserving financial stability. Specifically, how should they account for financial stability considerations in their pursuit of price stability, he quipped.
Despite the difficult trials and trade-offs, central banking in the current decade is a success story, Das asserted and added in the realm of monetary policy, central banks have been successful in bringing inflation closer to targets.
He concluded saying central banks must remain vigilant, adaptable, continuously assess risks and build resilience. They should remain prepared to navigate complex challenges, support sustainable growth, maintain price stability and promote sound and vibrant financial systems.