Who Moved My Interest Rate?

Duvvuri Subbarao’s term as the governor of the Reserve Bank of India from 2008 to 2013 was by all accounts an unusually turbulent period for the world and for India. The global financial crisis erupted within a week of his assuming office. Then, just as the impact of the crisis on India ebbed, the action shifted to combating a decade-high, stubborn inflation during 2009-11, which segued into a battle against a sharp depreciation of the rupee starting mid-2012. Who Moved My Interest Rate is an insider’s account of the dilemmas and quandaries Subbarao confronted while leading the Reserve Bank through these extraordinary economic and political challenges.

Subbarao’s five years at the Reserve Bank also marked an intellectually vigorous period for central banking around the world. Not only did the global financial crisis test the policy force of central banks, but it also raised several questions about the breadth of their mandates and the limitations of their autonomy and accountability. While much of the existing debate is set in the advanced economy context, Who Moved My Interest Rate places these issues squarely in an Indian and emerging market perspective. This is also a compelling chronicle of Subbarao’s attempts to demystify the Reserve Bank and explain to the public its impact on their everyday lives. Honest, authoritative and deeply insightful, this book enhances our understanding of what is, arguably, one of India’s most trusted institutions.


Our currency notes carry a promise by the governor. For example, a `10 note has a promise on it, saying: ‘I promise to pay the bearer a sum of ten rupees.’ A woman actually having a ten rupee note in her hand can be quite perplexed by this promise. What does it mean for the governor of the Reserve Bank to promise to pay you ten rupees when you actually have ten rupees in your hand? Tautological as it might seem, it is simply an old fashioned way of saying that the currency note is legal tender and will be accepted as a medium of exchange on the trust of the Reserve Bank.

The critical word here is ‘trust’, which is the core of any system of money. Paper money originated on the basis of trust, trust that the holder of a note could go to a bank and exchange the note for an equivalent value of gold or silver. If that trust — that the bank would redeem its pledge without fail — held, the note would circulate as a medium of exchange without anyone ever going to the bank to exchange the note for precious metal.

Sure, that explanation of the evolution of money based on trust is persuasive enough. But, is there a deeper meaning...

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