"Above all, we need to avoid beggar-thy-neighbour policies, such as unconventional monetary policy or sustained exchange-rate intervention, that primarily induce capital outflows and competitive currency devaluations," he said in an article in 'Project Syndicate'.

Incidentally, China today lowered the yuan's central rate against the US dollar by 0.51 percent to 6.5646, the lowest since March 2011. A lower currency would make Chinese exports cheaper and more competitive in the global markets.

Indian capital markets joined the global sell-off sparked by China growth concerns. The rupee also fell to more than a three-week low of 66.93.

According to Rajan, multilateral institutions like the International Monetary Fund should exercise their responsibility for maintaining the stability of the global system by analysing and passing careful judgement on each unconventional monetary policy (including sustained exchange-rate intervention).

Rajan said that developed countries have just one other channel for growth-- boosting exports by depreciating the exchange rate through aggressive monetary policy.

In response, several of them cut investment in the late 1990s and began running current-account surpluses, preferring to accumulate foreign-exchange reserves to preserve their exchange-rate competitiveness, the RBI Governor added.

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