RBI Governor Shaktikanta Das has called for reforming the international financial architecture to ensure equitable voice and representation for the emerging economies, and overhauling of the debt resolution architecture for vulnerable countries.
He also said there is a pressing need to improve global financial regulation to manage systemic risks posed by private capital and non-bank financial intermediaries.
In his remarks at the Macro Week 2024 organised by the Peterson Institute for International Economics (PIIE), Washington DC, Das observed that the first and foremost priority should be accorded to reforming the international financial architecture by prioritising inclusive global governance frameworks that better reflect the realities of today’s global economy.
“The current system, while foundational, needs to reform itself to ensure equitable voice and representation for the emerging economies.”
“Enhanced access to resources and a stronger role in the governance of institutions such as the International Monetary Fund (IMF) and the World Bank will not only enhance the legitimacy of these institutions but also foster more serious global cooperation in addressing macro-financial challenges,” he said.
Debt restructuring mechanisms
While the G20’s Debt Service Suspension Initiative (DSSI) and the Common Framework for Debt Treatments were commendable measures, the scale of the problem is much larger, the Governor said.
Debt restructuring processes remain ad hoc, slow, and – on several occasions – not sufficiently transparent, resulting in protracted crises, causing unnecessary economic suffering for the debtor countries, he added.
Das said: “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.
“Without such reform, the vulnerable countries will continue to face unsustainable debt burdens which will have repercussions for global financial stability.”
Rise of shadow banking and fintech
The Governor emphasised on the need to recognise the fragility and fault-lines of the global monetary and financial system, both institutions and markets.
“Recent years have highlighted the risks posed by financial instability, in both advanced and emerging markets. There indeed is a pressing need to improve global financial regulation to manage systemic risks posed by private capital and non-bank financial intermediaries, which now hold significant portions of global assets.
“The rise of shadow banking and fintech, and the growing footprint of decentralised finance, require more robust regulatory oversight to prevent contagion effects and ensure financial stability as a global public good,” Das said.
Digital divide
The Governor noted that as the global economy becomes more digitalized, countries that lack the infrastructure, skills, and regulatory frameworks for digital inclusion risk falling further behind.
The G20 and the international monetary and financial institutions should work towards nurturing an ecosystem that promotes investment in digital public infrastructure, and widespread adoption of digital technologies while ensuring cybersecurity and privacy safeguards, he said.
Economic fragmentation
Das observed that geopolitical tensions are increasingly affecting economic policies, leading to sanctions, weaponisation of finance, trade restrictions and supply chain disruptions.
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.
The Governor opined that G20 must play a key role in preventing further economic fracturing by promoting open and rules-based trade systems.
While recognising the need for countries to secure their supply chains in tactically important sectors, the G20 should foster cooperation in areas such as technology transfer, investment in global public goods, and green transition, he added.