Raghu Rajan sees rupee, yuan as international currency soon

Rajan said, "My sense is that the next international currency would be the renminbi, when they allow it to be convertible and down the line, I think the rupee will join the basket of international reserve currencies when we allow full convertibility and so on."

Rajan spoke today in the Reserve Bank of India on financial regulation in the wake of the crisis where in he argued that the RBI would lose creditability if it monetizes the deficit. He said one way the RBI can distance itself from the government is by transferring the responsibility of debt management to the government.

The debt management office basically manages the issuance and auction of government bonds. This is currently being done by the RBI. Rajan also said that RBI should create a formal committee to make the interest rate policy. There is currently a technical advisory committee in p-lace which advises the governor but giving it a statutory place will require amending the RBI Act.

Raghuram Rajan said, "Let's have a broad focus on inflation. Let us communicate as the RBI has correctly done. That has the benefit of fixing inflationary expectations a little better, building credibility in RBI. Another thing that could help is to create a more formal structure for interest rate settings. More focused object and more formal system for setting interest rate would help."

Rajan's keypieces of advice for the post cirsis period is to hasten the development of the debt market so that banks don't bear all the risk of infrastructure investments. He also called for setting up small local area banks so that there is faster financial inclusion.