y v reddy : monetary and regulatory policies – how to get the balance with markets right remarks by dr y v reddy, governor of the reserve bank of india, as a panelist at the annual general meeting panel of the bank for international settlements, basel, 29 june 2008. * * * chairman jean - pierre roth, governor meirelles, distinguished economist bill white, fellow governors and friends. it was a treat to listen to edward lord george ’ s wonderful and erudite lecture on the “ approach to macroeconomic management – how it has evolved ” and sir andrew crockett ’ s comments, as chairman, on lord george ’ s per jacobsson lecture and also on lord george – “ steady eddie ” as he is warmly described. the reserve bank of india considers both of them as our special and lasting friends. i am also thankful for the opportunity provided to me to share my thoughts on monetary and regulatory policies. at the outset i would like to underscore that the critical word in the title is “ balance ”. so we have to recognize the links and interactions between the two, which may at times be reinforcing and at times be conflicting. in this balance, “ time - dimension ” is important. we know whether the balance is right or wrong only ex - post. for example, when there is all round prosperity, everyone wants everything to be left to the markets ; when things go wrong and there is pain, monetary and regulatory policies are invoked to save the situation. i will add that, in the balance to be maintained, public opinion is also important for the legitimacy and the effectiveness of monetary policy. public opinion goes beyond financial markets and institutions, but it is useful to remember that it includes government and media also. country - context is important because institutional factors of governance, state of the marketdevelopment, and values are relevant in the context of “ balance ”. hence, we cannot be judgmental about “ balance ” across countries, but we should assess the balance only in a country - specific context. i will present india ’ s experience in recent years as to how we are viewing “ balance ”, after recognizing all the above factors. first, on monetary policies, we monitor the monetary and credit aggregates. we use both liquidity and interest rate instruments. a dynamic balance is evident from the spread between the repo and reverse repo rates, which is enlarged during times of uncertainties. it has moved from 150 basis points to 100 basis points when

the customer? ( ii ) who controls the transactions? has there been any worthwhile attempt to resolve them in a mature way? i would urge upon the banks and msps to get their acts together very quickly. on behalf of rbi let me assure you that we stand committed to the success of this collaboration and would remove all genuine obstacles! enabling cross border payments through the medium of mobile phones 15. should mobile initiated cross border transactions be enabled? to my mind there cannot be a uniform standard for this. the issue is country specific and each country has to take its decision based on need, issues and threat perception. as far as india is concerned, even during the worst forex crisis, the country was careful about the quality of inflows. secondly, we have had rules that required all forex flows to be routed only through banking institutions or others specifically authorized to undertake forex transactions. given this background, even if we had to agree mobile phones can only be used to trigger the transfer of funds from overseas by a non - resident to the beneficiary ’ s bank account in india. the banks will have to be responsible for ensuring quality of funds, kyc, etc. we have in fact permitted banks to enable cross border bank account to bank account remittance through the medium of mobile subject to clearance from the local regulator. at the beneficiary end, we have enabled loading of funds received from overseas under the money transfer service scheme ( mtss ) scheme on to a prepaid payment instrument issued by a bank, which could include a mobile wallet, to the recipient of the funds. conclusion 16. before i conclude, let me reiterate that the mobile phone is a potent tool to facilitate financial services and thus financial inclusion. it has the potential but the security and cost aspects have to be addressed. the medium of mobile has to sub - serve smaller transactions and must become cheaper. the reserve bank has for well considered reasons opted for a bank - led model as it is a complete model for delivery of a wide range of services. just as you cannot have tele - medicine without a doctor, you cannot have mobile banking without a bank! the bc model would help to complement mobile banking, as customers need to approach bcs / atms only for hard currency requirements and conduct other banking transactions from anywhere from their mobile phones, provided of course, there are no tele - connectivity issues! as mentioned earlier, it is the social responsibility of everyone, who has