ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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An Embarrassment of Riches

An Embarrassment of Riches?
THE finance minister and the Reserve Bank governor have both recently expressed anxiety over the problems that may be caused by the inflow of foreign exchange into the economy. Together with hinting at measures to deal with the excess supply of dollars, the finance minister has suggested further liberalisation of import of consumer goods. This reflects a very limited perspective stemming from a monetarist stance on monetary and fiscal matters. In the first place, the current and anticipated levels of foreign exchange reserves cannot be said to be exceptionally high by any standard. Second, the external sector is far from acquiring resilience and strength enough to be free of periodic bouts of volatility. Finally, what in fact should be worrying policy-makers is the economy's lack of capacity to productively absorb foreign capital and larger liquidity. Neither the anxiety about the monetary implications of the rising reserves nor the proposal to use the reserves for current consumption suggests the existence of a well thought out strategy to deploy the foreign exchange assets productively.

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