Rajan argues that a central bank's independence is not guaranteed by its structure but by the political consensus supporting it. When political polarization increases, institutions like the Fed become vulnerable to pressure, as their supposed autonomy is only as strong as the political will to uphold it.
Raghuram Rajan explains that central banks are increasing gold reserves not just for diversification, but as a direct response to geopolitical risks like the seizure of Russian assets. This 'weaponization of payments' erodes trust in holding reserves in foreign currencies, making physically controlled gold more attractive as a neutral asset.
Former RBI Governor Raghuram Rajan points to a historical pattern preceding every major financial crisis: a U-shape in monetary policy. An extended period of easy money builds up risk, and the subsequent tightening phase triggers the collapse. This framework helps identify periods of heightened systemic vulnerability.
Rajan dismisses the idea of BRICS nations forming a serious challenge to the dollar's dominance. He highlights internal conflicts, like the India-China border dispute, and divergent interests as fundamental weaknesses. The group serves as a forum for discussion but lacks the cohesion for major initiatives like a common currency.
Rajan suggests that a central bank's reluctance to aggressively fight inflation may stem from a fear of being blamed for a potential recession. In a politically charged environment, the institutional risk of becoming the 'fall guy' can subtly influence policy, leading to a more dovish stance than economic data alone would suggest.
The massive spending on AI infrastructure may be a form of 'malinvestment,' similar to the telecom buildout during the dot-com boom. Rajan warns that while AI's promise is real, the transition from infrastructure creation to widespread, profitable use could be slow, creating a valuation gap and risk of a market correction.
The most significant labor arbitrage today is not in low-skilled factory work but in high-skilled professional services. Raghuram Rajan highlights that a top Indian MBA costs one-fifth of a U.S. equivalent. This massive cost differential, combined with remote work, makes countries like India a hub for high-value service exports.