bimal jalan : seminar on international financial architecture remarks by dr bimal jalan, governor of the reserve bank of india, at the symposium of central bank governors, hosted by the bank of england, london, 5 july 2002. * * * today ’ s topic is a very large one and the time available to us is relatively short. to make the maximum use of the time available to me, i will make four broad points rather than deal with any specific issues relating to the international financial architecture. these, we can deal with later in the seminar during the question / answer period. the first point that i want to make is that we need to recognize that the period of the 90s, despite many gains, has seen many more financial crises than the earlier decades. the most distinguishing characteristic of this period is a marked increase in volatility in exchange rates and capital flows. the swings in these areas have not only been large, but also unpredictable and unanticipated. thus, we have seen a large number of currency crises, for example, in mexico, russia, east - asia, brazil and currently argentina, turkey, and emergence of currency pressures in brazil and paraguay again. exchange rates of industrial countries, notably dollar, euro and yen have also shown both short - term volatility and large medium - term movements. capital flows, particularly to emerging markets, have similarly been volatile, with a boom phase being followed by an abrupt and equally large reversal. another feature of the abrupt movement in exchange rate is that while crisis initially occurs in one or two countries, their adverse effects can be felt across the world. in the light of the recent events following the argentina crisis, it is also not clear whether the contagion effect from one country ’ s problems to others has actually been contained, as was assumed only a month ago. as i said, there have been real gains also in terms of benefits from higher capital flows and more flexible exchange rates. however, it is also a fact that the international financial environment has become substantially more uncertain, unpredictable and unstable in the 90s than in the previous half - century. the second broad point that i want to make is that the present international financial architecture, which was designed at bretton woods after world war ii, was for a different era altogether - one of fixed exchange rates, preponderance of “ official ” and stable capital flows, and temporary current account deficits which could be met with temporary access to imf credit. the bretton

in delivery and design of financial services targeting the poor and the excluded, presents challenging policy and regulatory issues. even the g - 20 has set up the financial inclusion experts group to address these issues of ensuring financial inclusion and global safety nets. global awareness of the challenges and barriers and hands - on experience with policy, regulation and supervision is limited. industry innovation has thus far frequently outpaced the capacity of policymakers to respond. when we talk of reaching to the people, we must understand what types of problems are faced by customers and what is the solution. any policy and regulatory responses will therefore need to focus on articulating flexible approaches that can take account of multiple and competing objectives and that can accommodate further innovation. a key source of innovation is the capacity of technology to reduce costs and overcome other barriers to the provision of sustainable financial services to the excluded. 6. till a few years ago, there was a dearth of appropriate technology. but, now that technology has arrived, we have taken several initiatives to bring about financial inclusion. what we require is a business model and a delivery model. with this in view, rbi advised banks to formulate a board approved financial inclusion plan for the next three years. all banks have drawn up their financial inclusion plans and we are engaged in active discussions with banks on their plans. through this approach, we are putting the financial inclusion campaign into mission mode. based on our assessment and learning, we have advised them to review and revise their plans. our broad approach on achieving planned, sustained and structured financial inclusion is as under : technology : seamless integration of front - end with back - end 7. first, the transformational role of technology needs to emphasised. financial deepening is taking banking to people. we are speaking of this for the last four decades post nationalization ; we have failed if we see that the current coverage is of barely 32, 000 rural commercial bank branches. scalable financial inclusion cannot happen without stable and reliable information and communications technology ( ict ). not only the bank branches but also the branches of regional rural bank ’ s must also be on core banking solution ( cbs ), without which it would not be possible to scale up the financial inclusion efforts. the transactions through the hand held front end - devices should be seamlessly integrated with banks ’ main server. these devices must be capable of transacting the four minimum products as mentioned in a subsequent paragraph. there should be a provision in the smart card for integration with the ui