Former Bank of England governor Mervyn King would say boring is the ultimate quality of central banks. The wild excitement of demonetisation now makes one pine for the Reserve Bank of India’s stellar, boring old days.

Through India’s socialist years and then through its reluctant transformation into market economy, India’s central bank has come to symbolise to its people a repository of knowledge, wisdom and stability, its corridors walked by technocrats from the rarefied world of finance whose econospeak might sound abstruse but created an aura of competence. Men in suits – and they were always men, and always in suits – who seemed to have a lock on matters of high finance. But ever since Prime Minister Narendra Modi announced the withdrawal of 500 and 1,000 rupee notes from circulation in early November, this once steady hand on the tiller has looked unnervingly wobbly.

The currency ban, which Modi said was aimed at removing “black money” – as unaccounted wealth is called in India – removed 86 per cent of the money in circulation in one go. First hailed as a decisive strike against India’s endemic corruption, public anger began to mount as it became clear that the central bank, the sole authority with the right to issue currency, had not arranged for enough notes to replenish the old stock. Even the ATMs had not been recalibrated to dispense the new 2,000 rupee note. As a result, banks have witnessed serpentine queues, small cash-run businesses have ground to a halt and farmers have struggled to find the cash to buy seeds and fertiliser in sowing season. To make matters worse, the RBI has been changing rules on cash exchange, withdrawals and deposits almost on a daily basis.

One of the biggest victims of the resultant chaos has been the RBI itself; its reputation as one of the most respected institutions in India – right up there with the Supreme Court and the armed forces – lying in tatters. Standard & Poor’s director Kyran Curry last month said demonetisation has “cast a shadow over the RBI’s competence and independence”. The opposition Congress party now calls it the “Reverse Bank of India” for constantly making new rules and then withdrawing them under public pressure.

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The spectacle of this once proud institution being turned into a joke has been too much for some of its past governors to bear, with two of them last week airing concerns about the steady erosion of autonomy. While former governor Y.V. Reddy said the RBI is facing “reputational risk” and its “institutional identity has been damaged”, his predecessor Bimal Jalan warned the autonomy of the RBI is “fundamental” and needs to be maintained.

In a letter addressed to the governor on Friday, the United Forum of Reserve Bank Officers and Employees said the autonomy and image of the RBI had been “dented beyond repair” due to mismanagement and termed the appointment of a senior finance ministry official as a “blatant encroachment” of its exclusive responsibility of currency management.

“May we request that as the Governor of RBI, its highest functionary and protector of its autonomy and prestige, you will please do the needful urgently to do away with this unwarranted interference from the Ministry of Finance, and assure the staff accordingly, as the staff feel humiliated,” it urged.

But Dhruba Narayan Ghosh, former chairman of the State Bank of India, the country’s biggest bank, says the issue is far greater than central bank autonomy. Demonetisation, according to him, has dealt a near death blow to the institutional integrity of the RBI. “The central bank is the custodian of the entire banking system. It is its fundamental responsibility to preserve the payment and settlement system. The RBI has basically abdicated this responsibility,” he says.

“Can such an institution, so thoroughly incompetent, even talk about independence? When the regulator itself becomes the disruptor, God save the country.”

India’s Public Accounts Committee has sought from RBI Governor Urjit Patel along with top finance ministry officials an explanation on the central bank’s exact role in the decision to withdraw legal tender of high-value notes and its serial flip-flops in the wake of demonetisation. Among the many unanswered questions is whose idea was it, exactly.

While Modi announced the move in a televised address on November 8 and his party hailed it as a masterstroke, some government members have subsequently suggested the idea originated from the RBI. On its part, the RBI refuses to make public the minutes of its hurriedly called meeting that approved the currency ban just hours before Modi announced it.

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In a note responding to a query by a parliamentary panel, the RBI said it recommended a note ban at this meeting on November 8, a day after the government sent its recommendation. As confusion persists as to who recommended it to whom, Nobel Laureate Amartya Sen waded into the debate last week saying he didn’t think it was the RBI’s decision. “This must be Prime Minister’s (decision)...I don’t think the RBI decides anything anymore,” he said.

Ghosh blames Patel, a low-key bureaucrat who took over from rockstar-like Raghuram Rajan in September, for this crisis of credibility. “He is the worst governor the RBI has ever had. He should resign immediately,” he says.

Jon Thorn, director of India Capital Find, however, is reluctant to lay it all at the governor’s door. “Patel is as good as any central banker. Demonetisation was ultimately a political decision,” he says, implying that Patel couldn’t have resisted if Modi really wanted it.

Ghosh agrees there is no institutional mechanism for the central bank to push back against the government. The word “autonomy” does not even figure in the RBI Act that led to its creation in 1934. A veteran banker, Ghosh has no illusions about the boundaries between the government and the central bank. The RBI is, after all, owned by the government, which also has the sole power to appoint its governor. “That’s a design failure. It is the personality of the governor that has traditionally played a big role in buffering the institution from political interference,” he says.

And this is where Patel may have failed most miserably compared with his predecessor. Rajan’s status as a public intellectual forced his political bosses to treat him with more respect. In fact, his active public engagement could very well have been designed as an insurance policy against political interference. Media-shy and rarely seen outside the RBI, Patel, on the other hand, is more in the old-school, bureaucrat-regulator mould.

Rajan fought a running battle with the government, refusing to lower interest rates even as the finance ministry wanted him to. Finally he decided to bow out and return to academia as the confrontation with elements within Modi’s Bharatiya Janata Party got progressively nastier, even personal.

A month before leaving office, Rajan said in a public lecture that he didn’t think much of demonetisation. “Black money hoarders find ways to divide their hoard into smaller pieces … It is not that easy to flush out black money,” he had then said.

“Obviously demonetisation was under discussion then,” says economist Praveen Chakravarty, a senior fellow at Mumbai-based think tank IDFC Institute. “Rajan is now looking like an even bigger rockstar. It’s now clear why he had to leave. He would not want to be party to a disruption like this with so little preparation and no cost-benefit analysis whatsoever.”