There are certain historic moments—of glory and of humiliation in a nation’s life. The defeat in 1962 at the hands of the Chinese was one such but it was avenged when Lal Bahadur Shastri let Indian troops carry the war across the Punjab border in 1965 as also in 1971 when General Niazi signed the surrender.

There was another moment of national humiliation when India had to go with a begging bowl to the IMF after the economy crashed and foreign exchange reserves dwindled to just enough for two weeks of imports. To show how low India’s creditworthiness had sunk, the IMF insisted on a physical transfer of gold and Montek Singh Ahluwalia had to accompany the gold. (It is said that the lorry carrying the gold to the airport broke down but that may be apocryphal.) Forty years of bad economic policies had led to this outcome.

Last week the RBI bought 200 tonnes of gold and this was the redeeming moment. I recognise that this was a technical operation and 200 tonnes is not much by the standards of a Central Bank. But it was still symbolic that after 18 years India had now come back and had to be seen as a solvent and indeed a well-endowed country.

It was India’s gentle way of saying that the dollar was on a downslide and indeed needed a healthy devaluation in the interests of the global economy. But it also gave notice to the G20 and the IMF that if the global economy was to wean itself off the dollar as the sole key currency, there was no viable substitute in sight except for gold. The decision last April at the G20 to strengthen the IMF’s capacity to issue SDRs to supplement the dollar as a key asset has been too slow in implementation. The Chinese have tied their currency to the dollar and thus refused to act as a possible key currency power.

... contd.