One of the great dangers of monetary policy today is that there is no coordinated emission of global liquidity. You have got three global reserve currencies—the yen, euro and the dollar. I think in 10-15 years, we have to prepare for the fact that the Indian rupee and the Chinese yuan will be two more global reserve currencies. Given the way the world is structured today, unless those monetary authorities coordinate the emission of global liquidity we are going to have problems in the system somewhere.

•Dhiraj Nayyar: Some would argue that China and India have grown spectacularly with capital controls, whereas other countries with very liberal capital account regimes have been prone to crisis and slower growth. Your views?

Its like looking at the bushman of Kalahari and then asking whether being 4’7” makes a better marksman. It’s a correlation of totally, in my view, wrong variables. One can say that India and China have grown and they have capital controls. China has got reserves of $1.5 trillion, India has got reserves of $300 billion though it’s going down. But these are signs of weakness. To me they are not signs of strength. You can understand reserves building up on the part of Singapore or Saudi Arabia if you are making a billion dollars a day from oil. But in continental economies like India and China, the growth of reserves of this type is essentially indicative of two fundamental problems—one is the financial system is a primitive relative to the needs of the real economy and two, the financial flows which should be managed through a market system are largely managed by the government

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