A tale of a central bank and a central banker

The NBU and RBI Governor Das have be displayed extraordinary resilience at a time when the economic headwinds have been the harshest in recent decades

The website www.CentralBanking.com tracks all the developments pertaining to central banking and monetary policy. Over the years, it has become one of the major platforms in the central banking space.

In 2014, it started giving annual central banking awards. The awards are given under various categories: Central Bank of the Year, Governor of the Year, Transparency Award, Website of the Year, and so on. The awards have gradually become popular among central bank watchers as they highlight several initiatives taken by awardee central banks.

In this year’s awards, which also marks the 10th anniversary of the awards, the National Bank of Ukraine (NBU) was awarded the Central Bank of the Year, and Reserve Bank of India Governor Shaktikanta Das was awarded the Governor of the Year.

The NBU’s challenge

The NBU has been awarded for maintaining ‘financial and macroeconomic stability in the face of extreme shocks’. This is not surprising as the NBU has indeed played a stellar role during the crisis. The NBU staff communicated about the policy measures via its website as regularly as other central banks in normal conditions.

The award citation reveals stunning facts on how NBU managed war induced economic and financial crisis. The war threatened Ukraine’s payment system infrastructure forcing the NBU officials to ensure continuity of operations. The NBU leadership relocated staff to safer regions barring the First Deputy Governor (Kateryna Rozhkova) who stayed at the headquarters in the capital Kyiv.

The NBU used to target inflation before the war. It had to drop inflation targeting and, instead, start protecting the currency (Hryvnia) which was depreciating sharply. It increased policy rates sharply by 1,500 bps from 10 per cent to 25 per cent to protect the value of the currency! It was forced to increase policy rates despite the economy declining by 30-40 per cent.

The central bank had to support the government’s war financing and has found ways to channelise war support from other countries and donors. The war panic led to many people fleeing Ukraine, further putting strain on the payment system and banks. The central bank established power banking, where bank branches could work without electricity and Internet. The central bank also set up communication channels to do both, communicate with Ukrainians and stop spreading misinformation by Moscow. The bank also came under cyberattacks by Russian hackers.

The NBU and its officials clearly deserved the award.

Das’ critical reforms

Das has been awarded for cementing critical reforms, overseeing payments innovation, and steering India through difficult times with a steady hand and a “well-crafted turn of phrase”. The award citation notes how Das had to deal with IL&FS crisis right after joining the RBI. This was followed by Covid-19 shock where Das announced several policy measures using a style of language that became his signature: “offering not just reassurance that the RBI had the technical capabilities to master the situation, but also a human connection, recognising the anxiety and fear a billion people faced.”

Das and the RBI kept working on innovating in payments space. The UPI payment system has not just become the default digital payment option for most Indians, but it has also caught global attention. The RBI has already linked UPI with Singapore’s Paynow in February, and more such tie-ups are being explored.

Unlikely candidates

The NBU and Das are interesting choices as not very long ago both looked the least likely to get these awards.

Even before the current war, the NBU was under immense pressure, even fighting for its independence. In December 2016, the NBU nationalised PrivatBank after its owner and Ukrainian oligarch Ihor Kolomoyskyi was accused of fraud worth $5.5 billion and his assets were frozen.

Kolomoyskyi appealed against the nationalisation in the court and also ran a slander campaign against the NBU. The pressure on then NBU Governor Valeria Gontareva was so intense (she received coffins outside her house) that in 2017 she resigned. In the next five years the NBU saw three governors. The pressure was so intense, that the NBU put up a separate website citing how it is being attacked from all corners and is losing its independence.

In Das’s case, the political-economic environment was not as vicious as it was in Ukraine. He was appointed as RBI Governor in December 2018, when talks between the government and the central bank had broken down. So much so, that Urjit Patel resigned as RBI Governor, with one year remaining in his three-year term. This was the second case of an RBI Governor resigning before term, the first being Benegal Rama Rau in the 1950s. Das’s non-economics background earned opprobrium from the critics. Das was also seen as closer to the government and there were concerns that days of RBI’s independence were numbered.

However, what panned out was very different. The noise around the RBI’s independence gradually died down. After finishing his first term, Das was appointed for another three years. His tenure of six years, ironically, is second-longest after BR Rau’s 7.5-year term!

Das as a career bureaucrat has managed the two sides of the RBI and government rather well, which was a struggle for his three predecessors. YV Reddy, former RBI Governor (2003-08) summed up Das’ performance in the CentralBanking.com citation as:

“In my view, he has done an outstanding job in view of the extraordinary challenges he faced during the period and also the manner in which he had to negotiate the relationship with the government.”

There can be no better compliment as Reddy himself earned accolades for both managing relations with the government and the economy.

(Amol Agrawal is an economist teaching at Ahmedabad University.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.