of crisis. it is important to recognise that the insurance embedded in long - term debt often outweighs the cost. these issues have direct relevance to corporates ’ access to external funds, both in terms of cost and the period of borrowing. the cost of borrowing may increase on account of longer maturities, but they will have the comfort of stable flows. in times of crisis, the costs of disruption on account of destabilising flows may far exceed the cost of raising longer - term debt. there are issues on how the policy makers could promote or ensure an optimal maturity structure. there can be several views on what an optimal maturity itself is. there is one influential view that the average maturity of a country ’ s external liabilities should exceed a certain threshold, say three years. in india, from 1992, emphasis has been laid not only on the cost and size of debt, but also on the maturity. the desired maturity profile is taken into account in policy articulation and clearance of individual cases. the average maturity of our ecb, as you may be aware, is five years. basically, considerations of the size, cost and maturity are embedded in the clearance mechanism for ecb. thus, the ecb policy, though it is being liberalised gradually, will ensure built - in measures towards an optimal maturity. the instruments by which this objective is achieved will continue to be refined from time to time, taking account of international developments also. short - term debt a major source of vulnerability in the asian crisis was the large stock of short - term liabilities of banks and corporates. in the short - term liabilities, debt constitutes a contractual obligation and is thus on a different footing. as mentioned, the link between short - term debt and reserves has come to the fore in these deliberations. there is a cost to building up reserves through large debt flows since the cost of debt would generally be higher than the return on reserves. however, not all short - term flows are bad and some short - term finance is essential to finance transactions. in fact, it is recognised that trade - related short - term credit is not as volatile as non - trade - related credit. overall, there appears to be a consensus now in favour of restraining the inflow of short - term capital until markets, institutions and regulatory frameworks have been sufficiently strengthened. there is, however, a growing debate on the means by which short - term flows can be controlled. major suggestions relate to effective

deepak mohanty : what should be the framework for monetary policy in future? vote of thanks by mr deepak mohanty, executive director of the reserve bank of india, at the 15th c d deshmukh memorial lecture on “ a revolution in monetary policy – lessons in the wake of the global financial crisis ” delivered by prof joseph stiglitz, mumbai, 3 january 2013. * * * honourable professor joseph stiglitz, governor dr. subbarao, distinguished guests and colleagues from the reserve bank. central banks have come under severe intellectual scrutiny ever since the global crisis, even as they have crossed all conventional barriers in responding to the crisis. monetary policy was partly blamed for the genesis of the crisis, and it continues to be blamed for ineffectiveness in giving us a durable recovery. we need nothing short of a revolution to make monetary policy more relevant. two major forces playing out since the crisis could aid this revolution : first, the innovative response of advanced country central banks to ensure that this time it should be different from the great depression. second, the animated academic debate amongst the best minds in economics and finance, led by nobel laureates like prof stiglitz, to recommend what should be the framework for monetary policy in future? in his opening remarks, governor dr. subbarao discussed the first dimension, which included extensive reliance of advanced country central banks on quantitative and credit easing measures, operation twist and forward guidance, to escape the theoretical limits posed to the conventional conduct of monetary policy by the zero lower bound ( zlb ). he noted the far reaching changes emerging in the recent period in monetary policy frameworks of advanced country central banks, with the fed announcing an explicit target for unemployment ; the bank of england examining possible replacement of inflation targeting with nominal income targeting, and the bank of japan being expected to respond to prolonged deflation by accepting a higher explicit inflation target. emerging market central banks, despite the pre - crisis best practices, generally preferred to continue with multiple objectives, which included financial stability, and also tried to manage the impossible trinity, with country specific approach to exchange rate regimes and capital account. after the global crisis, the spillovers form ultra - accommodative monetary policies in advanced economies have amplified the challenge from the impossible trinity, besides increasing commodity price pressures. governor, dr. subbarao, encapsulated in his remarks the complex nature of the issues involved in the recent innovations in the conduct of monetary policy, most of which could be