Pics: Dayanand Kukkaje
Daijiworld Media Network - Mangaluru (JS)

Mangaluru, Oct 20: The new building of Manel Srinivas Nayak Memorial Besant Institute of Postgraduate Studies was inaugurated by Padma Vibhushan Dr Y V Reddy, former governor of Reserve Bank of India and chairman of the 14th Finance Commission at Bondel here on October 20.

Dr Reddy inaugurated the occasion by lighting the ceremonial lamp in the presence of other dignitaries.

Thereafter, in an interactive session Dr Reddy answered various questions asked by students. To a question on how exchange rates are decided, he said, "One does not know the exact exchange rate. It is fixed on the basis of exports and imports. The world is a whole and somewhere there is deficit and somewhere there is surplus. The exchange rate is fixed on this surplus and deficit. Stability determines the exchange rate."

Explaining the increasing rate of dollar every year, he said, "When there is inflation rate of 10% in India and 2% in the United States, the difference of 8% needs to be bridged. This is the reason in the increase in the rate of dollar. Appreciation will not happen on its own and you cannot wish it. You need to work for appreciation."

On black money and Goods and Services Tax (GST), he said, "Black money need not only be abroad. It is both external and internal. Some part is abroad and some within the nation. You cannot determine when it is black or white. In case of construction, a worker is paid in cash and when he pays it to buy day-to-day items, then it becomes white. GST can help to reduce black money to an extent, as everything becomes accountable."

Answering why RBI keeps high interest rates on borrowing, he said, "Banks do not create money on their own. When savers invest and borrowers buy, there is flow of cash. If savers are paid less interest then no one will deposit in bank, instead they will invest in gold or some other assets. So banks need to borrow at a higher interest. The intermediate expenses are high. It is RBI's responsibility to balance both."

When asked about the concept of quantitative easing, he replied, "When there was inflation, the Federal Central Bank pumped in the money to create economic activity so that industrial activities start. Too much floating of money in the market resulted in decrease in the interest rate. People started buying from one another, which resulted in the price hike of assets. Now since the purpose is served, the Federal Central Bank wants to withdraw the excess floating of funds. This has created the problem. When money was pumped into the market they did not have have an exit plan. This is the reason for the trouble. Since the pumping of the fund is done in the global currency, that is the dollar, the Federal Central Bank will decide based on what is good for the United States irrespective of the impact on other countries of the world."

Commenting on global currency, he said, "Global currency will be the one in which the world has confidence. Previously, the British pound was the global currency, now it is the dollar. When inflation began, countries like Singapore and Korea were in need of money. Event though the inflation began in the United States, these countries went to the Federal Central Bank to borrow money. The strength of US currency is US institutions - they have strong companies like Amazon and many others. When people have confidence in a country, its currency becomes the global currency."

Ananthakrishna of Karnataka Bank, Kudpi Jagadish Shenoy, president of Women's National Education Society, Mangaluru, Manel Annappa Nayak, industrialist and educationist and member of governing council of MSNM Besant Institution, various bankers and educationists were present.