Thread by @andymukherjee70

Here’s a thread on Raghuram Rajan’s thought-provoking piece. First, his op-Ed: Dollar debt dangers: Budget decision to issue foreign currency debt has no real benefit and enormous risks timesofindia.indiatimes.com/blogs/toi-edit…

I know @balahla said he hadn’t seen “internationalisation” of the rupee brought into the sovereign bond debate, he’s right. I wrote about it slightly earlier, though, when Viral Acharya left.

And, of course, my eyes welled up at the irony of the Swadeshi brigade finally finding Rajan to be a friend. Wasn’t he an IMF stooge? Part of a deep international conspiracy to make India a subservient nation for another 800 years?

Sorry, that was dinner break. Babar Ali, my Pakistani mutton supplier, had sent over some excellent “agla dast,” now that neither of our countries was competing in Cricket World Cup. (Read Veer Sanghvi if you don’t know what AD is). My thread on sovereign bonds will continue.

So @sonaliranade wants to know which are these banks that are pushing India to do a sovereign dollar bond. Well, it has never been a secret, and quite frankly, why should it be? It’s perfectly legit lobbying. google.com.hk/amp/s/www.live…

So 15 years ago, I was at Jeju, S. Korea, where at the ADB meet, the star attraction was Pakistan Finance Minister Shaukat Aziz. The fawning bankers couldn’t have enough of him because ... yes, you guessed it, he spoke English and would do dollar bonds! google.com.hk/amp/s/www.live…

India was also popular in Jeju in 2004, but only on third day when all bankers got bored of eating Korean and gate-crashed SBI’s party, asking right at the entrance itself, “Are you guys serving Indian?”

Sorry, I’m meandering. But the simple upshot is this: if the officials in New Delhi want Wall Street internships and jobs for their kids, a sovereign dollar bond is a good idea. Not that those aren’t available now. But it’s always good to have more rather than less, right?

Now, let’s go back to internationalisation of the rupee. It needed anchored inflation. Rajan never believed in growth-inflation tradeoff, short or long term. But even if you believe in it, we had by wringing inflation dry already paid the price. So why walk away from the prize?

A scene from another ADB confernce, two years later in Hyderabad, India. In a panel discussion, YV Reddy, discussing foreign participation in rupee G-Secs, rhetorically asked, “Who wants to take our currency risk?” A banker sitting in the audience shouted loudly, “We do.”

In 2006, when India was a lot poorer, it didn’t even want foreigners to stampede into rupee sovereign debt even as global investors craved for the currency risk. In 2019, India craves for dollar bonds — taking the currency risk on government accounts — because there’s no option?

Rajan’s rupee internationalisation project remains a worthy goal. Watch the trade war, and the disruption in global supply chains. Plug India in wherever feasible. INR, like CNY, won’t become an invoicing currency. But it’s possible to make INR bonds a globally accepted asset.

I have many disagreements with Rajan, including his tight liquidity stance. The late Gangadhar Darbha once told me that a failure of the inflation targeting panel he’d served on was that it hadn’t proved that such a mechanism would’ve fought off the Indian variant of inflation.

But the goal was clear. Anchor inflation. Make expectations of long-term inflation impervious to what the petrol-pump gauge says when you’re filling up. And then the foreigners will come for your bonds. In your own currency. The “original sin” of dollar borrowing will be avoided.

Borrow $10B or even $20B every year to get a benchmark going for the private sector. But when there’s no credibility for even GDP or budget data, who’ll believe in a hard limit? And if there IS credibility, you can as easily borrow in rupees! Why not work on credibility then?

I’ll end here. We’ve done serious damage with bogus nationalist binaries on who went to U Chicago and who didn’t. A dollar bond wrapped in “bahi khata” is still very much a global I-banker project. Weigh it, and then accept, reject or limit — but do it in real national interest.