["These people are very smart. They come from Goldman Sachs, JPMorgan Chase. They earn a lot of money. They are the smartest people in this room. Why do they ruin their business? And we? We Just low-income regulators, do we think that we know more about their business than they are? No, in fact, we don’t know much about themselves, but we have different motives. They are in a frenzied competition. And we can stop them from doing this."]

“Why does the Indian domestic media call you a 'rock star'?”

When Raghuram Rajan ("Rajan") was asked this question in the first financial interview in early 2017, he sneered and said: "Don't listen to them."

However, the origin of "rock star" is in fact self-evident - he always adheres to his position and is "not afraid" to all industrial powers.

Rajan is a Ph.D. in Finance at the Massachusetts Institute of Technology. He is currently a tenured professor of finance at the University of Chicago's School of Business. In September 2016, he took the initiative to resign as the governor of the Bank of India. The reason for the rumor is that Rajan’s early retirement may be Under the pressure of political pressure, the government hopes to cut interest rates to stimulate the economy, while the central bank hopes to curb inflation through regulation and control; previously, Rajan was the youngest of the International Monetary Fund (IMF) and the first chief economist from a non-Western country; Before the 2008 financial crisis, the “Dr. Doomsday Doctor” was one of the few economists in the storm of prophecy. He once became the laughing stock of the financial world because of this extreme pessimism, but after 2008, Things have proven everything.

In May 2010, Rajan wrote his own prophecy as a book called Faultlines, which quickly became popular around the world. He once again sounded the alarm for the world – the initiators of the financial crisis were not greedy bankers, sleepy regulators, irresponsible borrowers, but “global income imbalances”, and “the initiator of financial collapse was stagflation” The imbalance between income and rising prices."

"He has a wealth of academic attainments, taught at top universities, served as a chief economist in international organizations, and served as a central bank governor in major developing countries. He has a comprehensive international perspective, and the key is that he is outspoken. Once public criticism (foreign media's saying is 'bombardment') the Fed's sudden withdrawal from QE is irresponsible to the irresponsible practices of emerging markets, and hopes that he can continue to maintain this trait in his own field." Secretary General of Shanghai Development Research Foundation Joye told the First Financial reporter. The reporter had inadvertently discovered that the book "The Fault Line" was lying on his notes.

Now Rajan, who has stepped down as the governor of the Bank of India, has returned to the free sea of ​​academic research. Of course, everything is just beginning. The reporter has learned from many sources that Rajan may be the best candidate for the next IMF president. If the predictions come true five years later, this will effectively expand the representation of emerging markets in the IMF and the international arena.

Become attached to economic and financial

Rajan was born in 1963 in Bhopal, central India. However, he spent most of his childhood in Indonesia, Sri Lanka and Belgium (his father worked in the Indian Ministry of Foreign Affairs) and returned to India at the age of 11. He mentioned in an interview that his strong interest in finance dates back to the days of graduate students at the Indian Institute of Management, Ahmedabad.

Previously, he received a bachelor's degree in engineering from the Indian Institute of Technology in Delhi. Rajan recalls the situation when he read Robert Merton's "Optional Rational Pricing Theory", which he said, not only by the "mathematical beauty" of the theory, but also by the MAT hematiCA lelegance) The theory "is practical in real life" is deeply touched. In 1991, he received his Ph.D. in Finance from the Sloan School of Management at the Massachusetts Institute of Technology and became an assistant professor at the University of Chicago Booth School of Business.

In 1991, Rajan wrote a doctoral thesis on the close relationship between banks and companies, which laid the foundation for his future prophecy of the financial crisis and his role as the governor of the Bank of India.

In January 2003, Rajan was awarded the first Fisher Black Prize by the American Financial Association for leading financial researchers under the age of 40 in recognition of his “to understand the various financial institutions, the way modern companies operate and the countries. Pioneering contributions to the causal relationship in the development of the financial industry."

The awards were so introduced to Rajan and his doctoral thesis that "when many economists praised the advantages of the banking industry, Rajan pointed out in his influential doctoral thesis that banks and businesses An overly intimate relationship also has its downside, as in the case of Japan."

The awards also mentioned that Rajan “combined the micro-theories of banks with macroeconomic theories” and more clearly clarified the role of banks in providing liquidity. This function is easy for banks. The reasons for the impact of the systemic crisis and the reasons for changes in monetary policy have had such a significant impact on bank lending."

Doug Diamond, one of the awardees, commented on Rajan's "it always shows very clearly how his research themes and research can improve the world." He also believes that Rajan is "very fair, just, unbelievable" and "is the rational messenger of our college" - Diamond pointed out that at the University of Chicago, especially at the Booth School of Business, "although Rajan is in some The controversial point of view is firm, but he has few enemies."

The ultimate contest at Jackson Hole

Although Rajan became famous as the chief economist of the IMF in 2003, he was familiar on the international stage, and he also had a speech at the Jackson Hole annual meeting and that. "The ultimate contest."

At that time, in 2005, Rajan published a foresight speech on the hidden risks of the financial system at the annual meeting, warning about the risks brought about by the growing financial securitization. The warning did not receive widespread response, and former US Treasury Secretary Lawrence Summers even criticized the paper's "hypothesis is simple and with a little bit of Lutheranism (Ludis ite)." Of course, everything that happened afterwards was well known—the Fed’s excessively loose monetary policy, lack of supervision, and securitization have become the initiators of the financial crisis. Rajan was one of the few economists at the time who predicted that the storm was coming before the financial crisis.

In fact, he said in an interview with Finance and Development magazine that there was nothing to ensure that his views were recognized in Jackson Hole for two reasons. First, because the economy was in good condition at the time, It is difficult to convince people to take measures to slow growth in order to deal with low-risk risks. After all, the Fed had dealt with the Internet crisis by injecting liquidity into the market. It is widely believed that “if another crisis breaks out, the Fed may respond in the same way – even if the problem is bank credit, not the loss of market value.”

Secondly, Rajan’s speech was delivered at a tribute to the outgoing Federal Reserve Chairman Alan Greenspan. Greenspan believes that "the key players in the financial system have no choice to deviate from their own target path." His views are widely recognized, so it is very difficult to persuade the audience in other ways.

And this group of viewers is the top player in the financial industry. Rajan said: "These people are very smart. They come from Goldman Sachs, from JP Morgan Chase. They earn a lot of money. They are the smartest people in this room. Why do they ruin their business? What about us? We are just low-income regulators. Do we think that we know more about their business than they do? No, in fact, we don’t know much about themselves, but we have different motives. They are already insane. In the competition, and we can stop them from doing so."

Despite being aware of the various challenges that may be faced, Rajan is blunt about what he insists on. In the next year or two, the financial community has considered Rajan to be a "Dr. Doom", which seems to be a joke on Wall Street. However, the unprecedented financial crisis of 2008 made these smart people speechless.

After the financial crisis, various kinds of "find-sighted" financial economic books emerged one after another, but one of the most insightful works is undoubtedly Rajan's "fault line." In December 2006, Rajan returned to Chicago after the contract with the IMF expired. There, he gained academic freedom to further explore the implications of financial innovation. "Fault Line" is his research achievement and won the 2010 Financial Times and Goldman Sachs Best Business Book Award.

Rajan warned in the book that the financial industry ("the mad banker") should not be a scapegoat for the financial crisis, because responsibility depends on a variety of complex and widely distributed fault lines, including the following: domestically leading to loose credit policies Political pressure (from income inequality); dependence on debt-ridden US consumer love base, net worth, information exporter's export-oriented growth strategy (such as China, Germany and Japan); think that the government will eventually rescue and thus bear Greater financial risks. So far, these warnings have still been used by the regulatory, academic and industry sectors.

"Blasting" Fed monetary policy

Rajan’s “no fear” is reflected in 2013.

Rajan was the five-year consultant to former Indian Prime Minister Manmohan Singh in Chicago and the chief economic adviser to the Indian Ministry of Finance in Mumbai. In September 2013, Rajan officially took the helm of the Reserve Bank of India. At that time, the Indian market was in turmoil due to rising inflation in India, huge fiscal and current account deficits, and slowing economic growth. However, Rajan quickly took measures to stabilize the Indian rupee exchange rate, significantly reduced inflation levels, and gradually increased foreign exchange reserves - making him the nickname "rock star" in the local media.

At that time, Rajan seemed to be more competitive with the Fed. In May 2013, then Federal Reserve Chairman Ben Bernanke said without warning that the Fed may gradually withdraw from quantitative easing (QE). When the voice fell, there was a crazy capital outflow in emerging markets. This incident was also called “tapertantrum”. Since then, Rajan has "bombed" the Fed in many forums. He believes that this is an approach that ignores emerging markets and calls for the Fed to pay attention to the spillover effects of its monetary policy and strengthen market communication.

This time, Rajan also said to the First Financial Reporter in an interview: "QE has led to a large amount of liquidity entering emerging markets, pushing up the currency value and debt level of these countries. It can be seen that QE not only exacerbates the vulnerability of developed countries. It has also aggravated the fragility of emerging markets and has a strong distortion effect on the price mechanism. It is precisely because developed countries have created this series of problems that I have emphasized that in the process of withdrawing from QE and raising interest rates in the United States, we must fully communicate with the market. Can't make a surprise attack."

On the other hand, in the past year, Rajan said on many occasions that low interest rates may cause price distortions, and he also supports the Fed to raise interest rates.

In response to these two different statements, Rajan explained to the First Financial reporter: "If you want to repair the financial system, QE is very necessary at the time. But the economic system has accumulated a huge amount of debt, so there is no good for these policies. In response, QE did not create additional growth since then, but instead caused a deliberate weakening of the currency."

Today, he supports the Fed to gradually raise interest rates under the conditions of economic recovery and is satisfied with the current communication work of the Fed. "Continuous easing will exacerbate global risks. There is never a best time to withdraw from QE and raise interest rates. If you are hesitant, the global economy will not be able to get rid of this state. Therefore, the Fed is preparing to raise interest rates because of the economic upswing. I think This is very appropriate. It can also give other central banks a signal, don't rely too much on monetary policy, and don't overreact to raising interest rates."

The good news is that the Fed now always mentions the state of the rest of the world in the policy statement, including the Chinese economy, and the signal is clearer. Rajan told reporters, "As the normalization process progresses in 2017, I hope that Japan and the European Central Bank can follow the Fed's communication practices."

Conjecture of the post-India central bank era

It is also such an economist who is "not afraid" and highly academically accomplished but has encountered resistance in his own country.

In 2016, the Bank of India announced that the current president, Rajan, will not have a second term and will step down on September 4 of the same year.

Priyanka Kishore, chief economist at the Oxford Economic Research Institute (OE), told reporters at the time: "Lajan’s accidental resignation has caused the public to worry about the direction of monetary policy, and whether the central bank’s central bank’s credit to regulate inflation will be Impaired. As far as successors are concerned, it may take longer to alleviate investor concerns and ensure policy continuity. If it is a politically intended appointment, it may increase concerns about the independence of the Bank of India."

Just before the announcement of the resignation, the Bank of India announced that it would maintain the 6.5% interest rate unchanged and that the inflation rate had an upside risk. India's interest rate is at a global high level in a negative interest rate environment.

In 2013, Rajan gave up his academic career in the United States and was appointed as the governor of the Bank of India. In fact, the mainstream view is that Rajan will be re-elected as the central bank governor. "In addition to some politicians expressing dissatisfaction with them, most Indians hope that Rajan will be re-elected. People in the industry also believe that Rajan’s efforts have contributed greatly to boosting the Indian economy in the past few years." Kisauer told reporters .

It is undeniable that the Indian economic trend has greatly improved after Rajan took office. From one of the former "Fragile Five" (FragileFive), to one of the emerging market countries with the least economic risk, the results can be seen. Although the economic recovery is partly attributed to low oil prices and low commodity prices, the Bank of India's good credit and ability to regulate inflation also contribute to the economic recovery.

However, the main reason for Rajan’s stepping down may be precisely the issue of interest rates and inflation. It is reported that the ruling party members accused Rajan of disregarding the requirements of the ruling party and maintaining an excessive interest rate policy. Earlier, when the economic adviser of the Indian ruling party proposed that the central bank should implement a more accommodative monetary policy, Rajan relentlessly dismissed it and said that there is no need to increase easing. Some foreign media believe that Rajan’s stepping down is entirely due to his own “disobedience”. In the first financial interview in early 2017, Rajan also said that he did not want to talk about any issues concerning India.

However, despite leaving the Bank of India, Rajan's next step is not to be imagined, and various circles have recently discussed whether Rajan will seek to serve as one of the IMF's presidents.

“Before Lagarde was re-elected as president of the IMF, there was a similar discussion in various circles,” said the National Bank of India Chairman Arundhati Bhattacharya during an interview with the First Financial News reporter during the winter in Davos. “But after Lagarde’s successful re-election, It depends on the direction of the events in the next few years and the will of Rajan himself."

In fact, the position of the president of the IMF has always been held by Europeans. In recent years, with the growth of GDP in the emerging markets and the rising economic volume, its voice in the old international organizations has not yet been reflected, so there is a point of view. It is believed that the addition of Rajan may also be one of the manifestations of expanding the voice of the emerging market.