Of confidence and coconut trees
“Confidence grows at the rate that a coconut tree grows, but confidence falls at the rate that the coconut falls,” Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, told a panel in Davos.
He also indicated that India’s decision not to float its currency and to build up massive reserves was correct, noting that this gave it a cushion during the downturn.
“Floating (currencies) would be fine, if that was what was meant, but what they mean by floating is crashing upwards and crashing downwards.”
John Lipsky of the IMF said the answer was a better international liquidity facility to give surplus producing nations the confidence that cash would be there if they did float and were hit by volatility.
He’s right though it would have to be a very big fund indeed. But if the lesson of the last five years is that everyone should export like heck and build up reserves we are going to have a battle on our hands and a long, deep downturn.
James Saft is a Reuters columnist. The opinions expressed are his own.