Take the ongoing banking crisis. There has not been a single speech or research paper reflecting on the spate of Indian banking crises in the past
Central banks are increasingly digging into their past. They are looking at history not only to justify their broad role in society but also to learn lessons from the past. Thus, US Federal Reserve officials speak about the great depression and civil war, the Bank of England on its 300-year plus history, the European Central Bank on the history of European integration and so on.
But that clearly doesn’t seem enough. Indeed, in an 8 August 2018 article, Prof J Bradford DeLong argued that the Fed tightening its policy is evidence that the US central bank has not learnt lessons from history.
“The most effective – and thus the most credible – monetary policy is one that reflects not only the lessons of history, but also a willingness to reconsider long-held assumptions. Unfortunately, neither attribute is much in evidence at today's Federal Reserve,” he wrote.
These words are even more prophetic for RBI whose monetary/banking policy barely has any insights from history, let alone reflection on past events. At least, one sees some sense of history in the research and speeches of Federal Reserve officials. We could argue whether lessons are being learnt or not, but there is hardly any such case in India. RBI is truly ahistorical.
Take the ongoing banking crisis. There has not been a single speech or research paper reflecting on the spate of Indian banking crises in the past. There are several instances of bank failures in Indian history. The systemic failure of banks in Bengal in the first half of 19th century, the collapse of Bombay-based banks post the American Civil War, banks in Punjab in early 20th century, during Partition or banks in Southern India following the failure of Travancore & Quilon Bank in 1938, and Palai Central Bank in 1960 are rich examples. Indian banks had a build-up of bad loans in the 1990s too, which was gradually resolved.
But there is no mention of any of these in either RBI talks speeches and or research. Hence, for most people, the ongoing banking crisis reads like a new phenomenon.
This is visible in quite a few discussions on the present crisis where people have suggested privatisation of nationalised banks. But they forget that one of the reasons for bank nationalisation was the crisis in private banks and the control of banks by industrialists. In fact, the question to ask is not just about non-performing assets (NPAs) and frauds in nationalised banks, but how industrialists have managed to capture public sector banks. Even within private banks, the woes of Axis Bank and ICICI Bank have parallels with several cases of private banks before the 1970s which forced the government to nationalise them.
A deeper reading of history will throw up parallels and differences with current situation, which will add depth to policy discussions. Research on the global financial crisis draws heavily from research on the great depression.
Having said that, it is not that we will necessary be able to draw lessons from the history as there is never really one main lesson. The research on great depression led to many ideas and it is never easy to understand the precise reasons for the crisis. We hear similar conflicting ideas about evolution of one currency in Europe. But then these conflicting views also tell us how economic development comes with trade-offs.
The Federal Reserve and European Central Bank (and other central banks) have been instrumental in encouraging this research. One big problem with doing such research independently in India is lack of sources. Central banks play a pivotal role in encouraging historical research as they hold much information in the forms of archives, old papers, speeches and of course, data. Research building on these initial records generates interest amidst the research community and spawns further work adding depth and breadth to the field. There is a reason why great depression continues to excite economists. RBI has a tremendous archive in Pune and a decent currency museum in Mumbai but one barely sees any research output from these outlets.
The story does not change even if one looks at other aspects of RBI policies such as monetary or exchange rate policy. policy. An ahistorical RBI is a tragedy since India has tremendous lessons to offer not just for itself but for the entire world given such a long journey of monetary and banking travails. But then as we choose to close ourselves to monetary history, the world does not care as well.
This is reflected in a commemoration volume released by Sweden's Riksbank, the oldest central bank in the word, for its 350th anniversary. The volume, "Sveriges Riksbank and the History of Central Banking" includes histories of other central banks such as England, Spain, France, Norway, and even Japan and China. Not surprisingly, India is absent, but this is odd as the country’s wide monetary history should be fodder for historians. But for that to happen, the Indian central bank has to first engage with history.(The author is faculty at Ahmedabad University. Views are personal)