Duvvuri Subbarao: Price stability, financial stability and sovereign debt
sustainability policy challenges from the New Trilemma
Inaugural speech by Dr Duvvuri Subbarao, Governor of the Reserve Bank of India, at the
Second International Research Conference of the Reserve Bank of India, Mumbai,
1 February 2012.
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I have great pleasure in welcoming you all to the Reserve Bank's Second International
Research Conference (SIRC).
We held our first international conference two years ago, in February 2010, as a flagship
event of our Platinum Jubilee celebrations. Many of you who had attended that conference
complimented us for its quality and urged us to repeat it. As much as we were flattered by
those compliments, I also suspect that the urging for a repeat was at least partly motivated
by the prospect of escaping from the bitter cold of some of your home countries at this time
of the year. So, here's welcoming all of you to warm and sunny Mumbai.
Conference theme
Let me start by explaining the motivation for the conference theme: "Price Stability, Financial
Stability and Sovereign Debt Sustainability: Policy Challenges from the New Trilemma".
The global financial crisis followed by the euro zone debt crisis has changed the theology of
central banking in a fundamental way. The orthodoxy of central banking before the 2008
crisis was: single objective - price stability; single instrument - short-term interest rate.
Although most central banks deviated to different extents from this minimalist model, this
came increasingly to be considered the holy grail.
The crisis came as a powerful rebuke to central banks for having neglected financial stability
in their single-minded pursuit of price stability. By the time of our first conference two years
ago, a consensus was developing around the view that financial stability has to be within the
explicit policy calculus of central banks, although opinion was divided on the precise nature
of institutional arrangements for maintaining financial stability.
Fast forward to 2011/12. Even as central banks are grappling with balancing the demands of
price stability and financial stability, there is now yet another powerful assault on central bank
orthodoxy arising from the big elephant in the room - the euro zone sovereign debt crisis.
The European Central Bank (ECB) is being called upon to bend and stretch its mandate to
bail out sovereigns who have forfeited the confidence of markets. Actually that is an
understatement. In reality, the ECB is being challenged on why it is, to use an Indian word,
being so brahminical about its mandate when the world around it is collapsing. The
argument, in its essence, is that if a central bank is committed to financial stability, it cannot
ignore the feedback loop between financial stability and sovereign debt sustainability, and by
extension therefore, it has to be mindful of sovereign debt sustainability concerns.
What do these trends engendered by the crisis indicate? In particular, is it the case that the
mandate of central banks is set to expand from the single objective of price stability to
multiple objectives of price stability, financial stability and sovereign debt sustainability? Can
central banks simultaneously support all these three objectives and do so efficiently? That in
essence is the new trilemma.
The new trilemma triggers several questions. How do the three objectives underlying the
trilemma reinforce each other, and in what ways do they conflict with each other? What is
their impact on growth? Is the trilemma an exclusive phenomenon of crisis times, or does it
manifest in normal times as well? What is the nature and extent of the responsibility of
central banks for each of these objectives? Are central banks equipped to handle these
additional responsibilities? And finally, what does this expanded mandate mean for the
effectiveness and autonomy of central banks?
That indeed is a long list of questions. The purpose of this conference is to think through
these weighty questions centred around this new trilemma.
Is this indeed a trilemma?
We deliberated internally on whether this evolving challenge for central banks would indeed
qualify as a trilemma. One view was that this is not strictly a trilemma as there is no theory
which says that we cannot simultaneously obtain price stability, financial stability and
sovereign debt sustainability. The opposing view was that what central banks have at hand is
indeed a trilemma in as much as there can be clear tensions between the objectives
underlying the new trilemma, and central banks may not be able to determine, with any
degree of exactitude, what inter se priority must be accorded to each of the three objectives
under different sets of circumstances. So, is this a trilemma or not? To compound the search
for an answer, the word "trilemma" has not made it to all standard dictionaries yet. So, permit
me a little indulgence into the world of trilemmas.
The world of trilemmas
Epicurus, the Greek Philosopher who lived around 300 BCE, was possibly the first to use the
concept of a trilemma to reject the idea of an omnipotent God. The distinction of being the
first to actually use the word "trilemma" goes perhaps to the 17th century English
nonconformist clergyman, Philip Henry, who recorded in his diary, "We are put hereby to a
Trilemma, to turn flat Independents, or to strike in with the conformists, or to sit down in
former silence". Arthur C. Clarke, the British science fiction writer, cited a trilemma in trying to
achieve production quickly and cheaply while also maintaining high quality, leading to the
quip: "Quick, Cheap, Good: Pick two". In public choice theory, there is the trilemma of
juggling three priorities - coverage, cost and choice - when offering a public service.
If we turn to economics, we will see that trilemmas have indeed proliferated. Dani Rodrik
(2007) argued that if a country wants more of globalization, it must either give up some
democracy or some national sovereignty. Niall Ferguson (2009) highlighted the trilemma of a
choice between commitment to globalization, to social order and to a small state (meaning
limited state intervention). In one of his FT columns, Martin Wolf spoke about the US
Republican Party's fiscal policy trilemma: the belief that large budget deficits are ruinous; a
continued eagerness to cut taxes; and an utter lack of interest in spending cuts on a large
enough scale. Then we have the Earth Trilemma (EEE), which posits that for economic
development (E), we need increased energy expenditure (E), but this raises the
environmental issue (E).
The trilemma more directly relevant to this conference theme is a financial stability trilemma
put forward by Dirk Schoenmaker (2008), explaining the incompatibility within the euro zone
of a stable financial system, an integrated financial system, and national financial stability
policies. By far the most high profile current trilemma, as per some analysts, is the euro-zone
trilemma: the seeming irreconcilability between its three wishes: a single currency, minimal
fiscal contribution to bail outs, and the ECB's commitment to low inflation.
The old trilemma
Even as I have spoken about more recent trilemmas in economics, the prima donna of all of
them is Mundell's "impossible trinity". This old trilemma asserts that a country cannot
simultaneously maintain all three policy goals of free capital flows, a fixed exchange rate and
an independent monetary policy. The impossible trinity, as students of economics have learnt
for over a half century, has a strong theoretical foundation in the Mundell-Fleming model
developed in the 1960s.
The choices the world made under the impossible trinity varied over time. Under the gold
standard, exchange rates were fixed and capital could move around, but central banks were
forced to adjust interest rates to ensure they did not run out of reserves. This could lead to
pressure on the real economy, and a lot of booms and busts.
Under Bretton Woods, we had fixed exchange rates (with occasional adjustments) and
independent monetary policy, but capital mobility was highly restricted; when I first went
abroad over 30 years ago, Indians couldn't take out more than $20, no matter the purpose of
the trip. The Bretton Woods system broke down under the weight of fixed exchange rates, and
the world moved to largely floating exchange rates. Capital has flowed freely round the world.
In the post-Bretton Woods era, countries have made different choices. The most common
case, typical across advanced economies, is to give up on a fixed exchange rate so as to run
an open economy with an independent monetary policy. On the other hand, economies that
adopt a hard peg give up on independence of monetary policy. Examples include the
currency boards set up by Hong Kong and, for a time, Argentina. More recently, responding
to a rapid appreciation of the Swiss Franc as a result of the safe haven effect, Switzerland
declared its commitment to defend a pre-announced exchange rate.
History is replete also with examples of countries aiming to achieve all three goals at the
same time, and failing to do so, often in a disorderly way. Thailand's decision to abandon the
hard peg against the US dollar in July 1997 is a classic example.
Notwithstanding its real life validation, it is not as if Mundell's "Impossible Trinity" is inviolable.
Many of the assumptions underlying this model do not often hold; indeed the new open
economy macroeconomy models that build in price rigidities and monopolistic competition
demonstrate policy dynamics quite different from those built in the Mundell-Fleming tradition.
It is also not the case that countries are forced into corner solutions at the nodes of the
impossible trinity triangle. As it happens, reflecting the forces of globalization and their
asymmetric impact, many emerging economies have opted for middle solutions.
Impossible trinity to holy trinity
In the context of this conference, is the new trilemma - the simultaneous pursuit of price
stability, financial stability and sovereign debt sustainability - a new impossible trinity?
Possibly not. There is no theory which says that these objectives are inconsistent with one
another. It can even be argued that the three objectives reinforce each other, and that
together they sustain growth, thereby constituting not an impossible trinity, but actually a holy
trinity of objectives.
That does not by any means imply that the holy trinity of objectives can always be achieved
simultaneously, or once achieved, can be maintained as such indefinitely. There would be
tensions and trade-offs, especially in the short-term. In particular, the tensions materialize
with brutal force in a state of disequilibrium - when inflation is off target, the financial system
is fragile and public debt is ballooning. To the extent we have to manage these tensions, the
policy problem qualifies as a trilemma.
The many ways in which the new trilemma plays out
Policies in pursuit of the three objectives under the trilemma interact in complex, and often
unintended ways. Sometimes they are supportive of each other; at other times, they may run
counter to each other. More perplexingly, the tensions and trade-offs may be different in
crisis times from normal times.
Let me attempt to illustrate this by citing some examples from global experience, including
recent experience. Given the three objectives underlying the new trilemma, and the two-way
directions in which they can interact, we have a total of six "cause and impact" bilateral
interactions. I will consider them one by one.
(i) Price Stability → Financial Stability
Before the global financial crisis, the stereotype view was that price stability and financial
stability complement each other i.e. monetary policy and policies for financial stability are
mutually reinforcing. The crisis has proved that wrong. Note that we saw the global financial
sector come to the brink of collapse in the midst of a period of extraordinary price stability.
Indeed the experience of the crisis has prompted an even stronger assertion - that there is a
trade-off between price stability and financial stability. In other words, the more successful a
central bank is with price stability, the more likely it is to imperil financial stability. The
argument goes as follows. The extended period of steady growth and low and stable inflation
during the Great Moderation lulled central banks into complacency. Only with the benefit of
hindsight is it now clear that the prolonged period of price stability blindsided policy makers to
the cancer of financial instability growing in the underbelly.
An even more recent example of a conflict between policies for financial stability and price
stability is of the ECB reversing its crisis driven expansionary stance by raising interest rates
twice during April-July 2011. The ECB justified this on the argument of stemming the
underlying inflationary pressures, but many criticized this move as being premature and as
clearly unhelpful to restoring financial stability. Of course, we all know that the ECB reversed
these hikes during November-December 2011 in response to the euro zone slow down.
(ii) Financial Stability → Price Stability
Let us now see the interaction in the reverse direction. Whether policies aimed at financial
stability can affect price stability is a debate that has stayed with us all through the period of
management of the crisis. Many analysts have argued that the extraordinary monetary
expansion, especially by the Fed, to bring interest rates to the Zero Lower Bound (ZLB) and
following it up with two rounds of "Quantitative Easing" (QE), all aimed at restoring financial
stability, may actually be sowing the seeds of inflation. The argument goes that since the
inflationary impact of easy monetary policies is difficult to see real time, the Fed risks going
overboard with monetary easing thereby jeopardizing future price stability.
We also have an illustration from emerging economies of policies for financial stability
affecting price stability. During the crisis, EME central banks eased monetary policy to
provide relief to the financial sector, but this also saw inflation quickly resurging when
recovery started.
(iii) Financial Stability → Sovereign Debt Sustainability
The management of the crisis offered an important lesson on how policies aimed at restoring
financial stability could impair sovereign debt sustainability. By far the most obvious
illustration of this link is the cost of bail outs of failing financial institutions, accompanied by
"fiscal stimulus", to prevent the financial sector problems from causing overall economic
activity to collapse. The fiscal action was unquestionably necessary to restore financial
stability. But the net impact need not always be benign. There are circumstances under
which fiscal expansion in support of financial stability can threaten sovereign debt
sustainability. That will happen if the sovereign is already highly indebted, and the recovery is
not quick enough or robust enough. Governments will then see their revenues falling, will
need to borrow to bridge the fiscal gap, and can potentially get trapped in a self-reinforcing
adverse fiscal feedback loop eventually jeopardizing their sovereign debt sustainability.
(iv) Sovereign Debt Sustainability → Financial Stability
For transmission of shocks from the sovereign to the banking system, the evolving situation
in the euro zone is clearly the most glaring example. Consider Greece, where banks are
being asked to share the burden of bailing out the government, the so called private sector
involvement - PSI, so that sovereign debt could be brought down to sustainable levels. But
this will affect their collective viability and potentially threaten broader financial stability.
There has been acrimony over whether the PSI is voluntary or involuntary. For the purpose
of this issue, that debate is a technicality; it does not alter the basic contours of contagion
from sovereign debt to financial stability.
The ECB's new term repo (LTRO) window offers another example of how sovereign debt
sustainability concerns can affect financial stability. This new window offers banks three-year
money at the repo rate to encourage them to use that money to lend to sovereigns, taking
advantage of the arbitrage opportunity. But this financial engineering is a fragile and
potentially problematic arrangement. Banks will need to post additional collateral with ECB if
the bonds they offered fall in value or suffer a credit downgrade. For precisely the same
reasons - fall in value and credit downgrade - banks will need to provide additional capital
against monies they have lent to sovereigns. This could put banks on a collateral spiral and
erode overall financial stability.
(v) Sovereign Debt Sustainability → Price Stability
The most obvious route for sovereign debt concerns impinging on price stability is through
the monetization of government debt. Central banks do, of course, resort to open market
operations (OMOs) - buying and selling government paper - for purposes of liquidity
management. But if the motivation for the OMO is to help out a fiscally vulnerable sovereign
or to reduce the cost of borrowing for the sovereign, central banks could end up holding price
stability hostage to sovereign debt concerns.
Fiscal concerns can dominate monetary policy in other less dramatic ways. In the years
before the crisis, an increasing number of governments were voluntarily adopting fiscal
responsibility rules, thereby allowing room for autonomous monetary policy. These
rulebased fiscal regimes unravelled during the crisis as both governments and central banks
implemented expansionary policies in close coordination. While such coordination during the
crisis was not questioned except by extreme purists, now in the recovery period, several
fundamental concerns are resurfacing.
At the heart of these concerns is whether monetary policy is once again becoming hostage to
fiscal compulsions. The specifics of the debate vary but the basic issues are similar. In the
US, the debate is over the trade-off between short-term fiscal stimulus and long-term fiscal
consolidation. In the euro area, the question is about the shared benefits of a monetary union
without the shared responsibilities of a fiscal union. In India, the question has been whether
the OMOs conducted by the Reserve Bank to manage systemic liquidity are acting as a
disincentive for fiscal discipline. The questions all around are: are central banks being forced
beyond their comfort zone to subordinate their monetary policy stance to the government's
fiscal stance? Aren't the so called unconventional measures, in reality, quasi-fiscal
measures? Are central banks, in the process, compromising their basic commitment to price
stability?
(vi) Price Stability → Sovereign Debt Sustainability
There are several ways in which policies aimed at price stability can influence sovereign debt
sustainability. Higher interest rates, necessitated to combat inflation, raise the costs of debt
to the government. Also, if the government has large subsidies on its budget, as do many
emerging and developing economies, inflation could raise the cost of subsidies thereby
raising the borrowing need of the government. On the other hand, governments with large
debts may not actually mind a bit of inflation as it affords them an opportunity to inflate away
some of the debt.
I have spoken about the tensions and trade-offs between the three objectives underlying the
new trilemma. The examples that I have given are by no means exhaustive but are intended
to illustrate the complex policy challenges they pose to central banks.
Four questions underlying the new trilemma
Now let me turn to some important questions that central banks will confront in managing the
new trilemma. In particular, I will raise four questions.
Question 1: are we seeing a return of fiscal dominance of monetary policy?
This question has surfaced with vigour in the context of the euro zone crisis. The ECB claims
that its bond purchase programme is aimed at restoring liquidity and improving monetary
transmission. But many analysts believe that this is a thinly veiled attempt to shore up
sovereign borrowing and that the ECB is actually acquiescing in fiscal dominance.
Although this tension between the central bank mandate and sovereign debt sustainability is
presently being played out in Europe, it is not new; nor is it unique to Europe. The seventy
odd years since the Great Depression saw a famous rivalry between fiscal and monetary
policies for influence. Historically central banks suffered from fiscal dominance since they
had to acquiesce in governments "borrowing as much as required at as low a cost as
possible".
This state of affairs started changing in the 1980s, with a wave of support for central bank
independence arising largely in response to the damage inflicted by the stagflation of the
1970s and the clear lesson that high inflation is detrimental to sustainable growth. So, fiscal
dominance gradually yielded to independent central banks, free of short-term compulsions,
targetting largely, and in some cases exclusively, price stability. Now it seems we are seeing
a reversal of that trend with central banks being called upon to mind sovereign debt
sustainability concerns.
Fiscal dominance manifests through the central bank acquiescing in the fiscal stance of the
government. This usually happens through monetization of debt through the central bank's
bond buying programme. Central banks typically conduct OMOs more as reverse
transactions (repos) for liquidity management purposes in line with their monetary policy
stance and intermediate targets. In that case, they should be seen as pure monetary policy
operations. But at times, OMOs could be motivated by the objective of providing liquidity to
support government borrowing or of reducing the yield on treasury bonds to enhance debt
sustainability. It then becomes a case of acquiescence in fiscal dominance. There is often
only a thin line, and the interpretation of the motivation for outright OMOs could vary
depending on the circumstances.
In the presence of large sovereign borrowing that makes the government's fiscal stance
unsustainable, central banks typically have little choice. If they do not conduct OMOs to bring
systemic liquidity within reasonable limits, they risk losing control over financial stability. If
they do conduct OMOs, they risk losing control over price stability. What this really says is
that fiscal responsibility is much more than a question of whether monetary policy is
independent or not. It is a question of sustaining macroeconomic stability.
Question 2: will the management of the new trilemma erode the autonomy and
accountability of Central Banks?
The much prized autonomy of central banks has come under assault post-crisis with an
influential view gaining ground that one of the principal causes of the crisis was the unbridled
autonomy of central banks. The standard argument for central bank autonomy is that
autonomy enhances the credibility of the central bank's inflation management credentials.
Monetary policy typically acts with a lag, and price stability therefore has to be viewed in a
medium term perspective. Having autonomy frees the central bank from the pressure of
responding to short-term developments, deviating from its inflation target and thereby
compromising its medium term inflation goals.
Now that the importance of central bank autonomy in monetary policy has come to be largely
accepted, the question is: will additional responsibilities underlying the new trilemma affect
that autonomy? And how will this new situation also affect the accountability structures of the
central banks? It may be useful to take stock of the apprehensions in this regard.
For overseeing systemic stability, new governance structures have emerged after the global
crisis. These include the Financial Services Oversight Council (FSOC) in the US, the
Financial Policy Committee (FPC) in the UK and the European Systemic Risk Board (ESRB)
in the EU. Here in India, we have the Financial Stability and Development Council (FSDC).
The precise institutional arrangements vary, but across all of them, central banks have a lead
responsibility.
With these new institutional arrangements for financial stability in place, the autonomy
question has acquired an additional dimension. Note that central bank autonomy has worked
because they could keep at arms length from the governments. But once a coordination
mechanism is in place, these barriers may melt away. Also, even if that is what the book
says, it may be difficult to straitjacket the discussion at the coordination forum to financial
stability. As we have seen, there are no "pure" financial stability issues; they are all
interconnected. A discussion on financial stability could very well lead to a discussion on
monetary policy. What then of the autonomy of the central bank? This apprehension, as all of
you will appreciate, is non-trivial.
If we now add responsibility for sovereign debt sustainability to this already complex
situation, the reason for apprehension about the threat to the autonomy of central banks
becomes more obvious. Sovereign debt is a quintessentially political subject, and as we
noted earlier, the very foundation of central bank autonomy is justified on the need to free
monetary policy from fiscal dominance. By requiring central banks to be mindful of sovereign
debt sustainability concerns as part of the "new trilemma", is the hard won gain of freedom
from fiscal compulsions being compromised? But look at it also from the opposite
perspective. Given that investor trust in public debt is part of the foundation of a nation-state,
is it realistic for a central bank to remain indifferent to sovereign debt sustainability?
The new trilemma also poses questions for central banks on the accountability front. With a
single objective of price stability, the deliverable could be precisely defined, the outcome
accurately measured, and accountability clearly extracted. Multiple objectives, and as we
have seen, with tensions and trade-offs between them, can diffuse and erode this
accountability mechanism. The central bank can always explain away any failure on one
front as a result of policies to defend another front.
There are no easy answers to these apprehensions about the impact of the new trilemma on
central bank autonomy and accountability. Governments and central banks in each
jurisdiction will have to define the nature and extent of the latter's responsibility for financial
stability and sovereign debt sustainability. I can only lay down certain tenets that must inform
this process. First, the fundamental responsibility of central banks for price stability should
not be compromised. Second, central banks should have a lead, but not exclusive,
responsibility, for financial stability. Third, the boundaries of central bank responsibility for
sovereign debt sustainability should be clearly defined. Fourth, in the matter of ensuring
financial stability, the government must normally leave the responsibility to the regulators,
assuming an activist role only in times of crisis.
Question 3: does the pursuit of the new trilemma militate against growth?
My short answer to this question is "no". Let me elaborate. It is possible that in the
shortterm, policies aimed at price stability, financial stability and sovereign debt sustainability
could, at times, run counter to policies required for promoting growth. But growth achieved at
the cost of the objectives of the new trilemma cannot be sustained. What can be sustained is
only growth that is consistent with these objectives. So, some sacrifice ratio may be
operative in the short-term, but in the medium term, there is no trade off between sustainable
growth and maintaining the objectives of the new trilemma.
Let me illustrate this with reference to the debate that played out quite actively in India all of
last year around the growth-inflation trade-off. We had inflation ruling all through the year in
the range of 9-10 per cent. To combat this, the Reserve Bank has had to tighten monetary
policy - raising rates, as all our critics are fond of saying repeatedly - a record total of
13 times. While inflation did not show any downward trend till late in the calendar year 2011,
growth has certainly moderated. The Reserve Bank's latest projection for growth for FY12 is
7 per cent, down from 8.4 per cent last year. The criticism has been that we could not bring
inflation down but only ended up hurting growth. This is not the occasion to enter a defence
of our position. But in the context of this conference, the criticism throws up an important
issue on the growth-inflation trade-off.
Evidence from empirical research suggests that the relationship between growth and inflation
is non-linear. At low inflation and stable inflation expectations, there is a trade-off between
growth and inflation. But above a certain threshold level of inflation, the trade-off disappears,
this relationship reverses, and high inflation actually starts taking a toll on growth. Estimates
by the Reserve Bank using different methodologies put the threshold level of inflation in the
range of 4%-6%. With WPI inflation ruling above 9 per cent till recently, we were way past
this threshold. At this high level, inflation is unambiguously inimical to growth; it saps investor
confidence and erodes medium term growth prospects. The Reserve Bank's monetary
tightening all through last year was accordingly geared towards safeguarding medium term
growth even if it meant some sacrifice in near-term growth.
The debate on the trade-off between financial stability and growth runs along roughly similar
lines. Post-crisis, regulation of financial institutions is being tightened. In particular, under the
Basel III package, banks will be required to hold higher capital, better quality capital and also
build up capital and liquidity buffers. What does this mean for growth?
A BIS study, undertaken by a group led by Stephen Cecchetti, estimates that a one
percentage point increase in the target ratio of tangible common equity (TCE) to
riskweighted assets (RWA) phased in over a nine year period reduces output by close to
0.2 per cent. The study argues though that as the financial system makes the required
adjustment, these costs will dissipate and then reverse after the adjustment period, and the
growth path will return to its original trajectory. A Basel Committee study estimates that there
will be net positive benefits from Basel III because of the reduced probability of a crisis and
reduced volatility in output in response to a shock. An IIF study, however, estimates a higher
sacrifice ratio - that the G3 (US, Euro Area and Japan) will lose 0.3 percentage points from
their annual growth rates over the full ten-year period 2011-2020.
What are the implications of these numbers relating to growth sacrifice for emerging market
economies (EMEs)? Let me take the example of India. Admittedly, the capital to risk
weighted asset ratio (CRAR) of our banks, at the aggregate level, is above the Basel III
requirement although a few individual banks may fall short and may have to raise capital. But
capital adequacy today does not necessarily mean capital adequacy going forward. As the
economy grows, so too will the credit demand, requiring banks to expand their balance
sheets, and in order to be able to do so, they will have to augment their capital.
In a structurally transforming economy with rapid upward mobility like India, credit demand
will expand faster than GDP for several reasons. First, India will shift increasingly from
services to manufactures whose credit intensity is higher per unit of GDP. Second, we need
to at least double our investment in infrastructure which will place enormous demands on
credit. Finally, financial inclusion, which both the Government and the Reserve Bank are
driving, will bring millions of low income households into the formal financial system with
almost all of them needing credit. What all this means is that we are going to have to impose
higher capital requirements on banks as per Basel III at a time when the economy's credit
demand is going to expand rapidly. How best can we resolve this tension between the
demands of growth and the demands of financial stability is a question that we in India and
several other EMEs will have to address.
I have gone at some length on this not to argue that the costs of financial stability outweigh
the benefi