states, has underscored how large a role expectations have come to play in real economic development. economists use the term “ time preference ” to identify the broader tradeoff that individuals are willing to make, even without concern for risk, between current consumption and claims to future consumption. measurable discount factors are intended to capture in addition the various types of uncertainties that inevitably cloud the future. dramatic changes in the latter underscore how human evaluation, interacting with the more palpable changes in real output, can have profound effects on an economy, as the experiences in asia have so amply demonstrated during the past year. vicious cycles have arisen across south - east asia with virtually no notice. at one point, an economy would appear to be struggling, but no more than had been the case many times in the past. the next moment, market prices and the economy appeared in free fall. our experiences with these vicious cycles in asia emphasize the key role in a market economy of a critical human attribute : confidence or trust in the functioning of a market system. implicitly, we engage in a division of labor because we trust that others will produce and be willing to trade the goods and services we do not produce ourselves. we take for granted that contracts will be fulfilled in the normal course of business, relying on the rule of law, especially the law of contracts. but if trust evaporated and every contract had to be adjudicated, the division of labor would collapse. a key characteristic, perhaps the fundamental cause of a vicious cycle, is the loss of trust. we did not foresee such a breakdown in asia. i suspect that the very nature of the process may make it virtually impossible to anticipate. it is like water pressing against a dam. everything appears normal until a crack brings a deluge. the immediate cause of the breakdown was an evident pulling back from future commitments, arguably, the result of the emergence among international lenders of widening doubt that the dramatic growth evident among the asian “ tigers ” could be sustained. the emergence of excess worldwide capacity in semiconductors, a valued export for the tigers, may have been among the precipitating events. in any case, the initial rise in market uncertainty led to a sharp rise in discounts on future claims to income and, accordingly, falling prices of real estate and equities. the process became self - feeding as disengagement from future commitments led to still greater disruption and uncertainty, rising risk premium

it stated, “ poverty anywhere is a threat to prosperity everywhere ”. to eliminate or to address the issue of poverty, financial inclusion is a very important means. until and unless you have an inclusive society you cannot dream to address the challenge of poverty. likewise, if universal financial inclusion has to become a reality, efforts to spread financial literacy have to be an essential pre - requisite. so that is what we are talking about here. financial literacy to financial inclusion to poverty elimination, this is something very very important for the global stability. 4. when i looked at the theme of this conference and as i pondered over what to speak, i actually started wondering about the nature of financial illiterates in the system. my own sense is that the “ financially illiterate ” can be broadly divided into five categories. let me explain : 5. the first form of financial illiteracy, i call “ wise illiteracy ” and people as “ wise illiterates ”. now you must be wondering that how a person can be called wise and illiterate in the same breath. when i say “ wise illiterates ”, i am referring to the victims of madoffs of the world or the people who happily submit to the financial scams – exchange scams, penny stock scams or exotic derivative products. this class does not only include individuals, but also corporates. they have all the resources at their command ; they understand risks in all its dimensions and pros and cons of their actions but despite that with an unnerving regularity, keep falling into the trap of mega level of scams. this happens in india as well as elsewhere across the globe. so, these are the “ wise illiterates ” in my definition. bis central bankers ’ speeches 6. the second category of financially illiterates i call them “ greed - driven illiterates ”. these are people who are well educated and well understand the risks involved in various financial decisions that they make. but in their case, greed overpowers sanity. believe me in reserve bank of india, every day we keep receiving strange complaints or the grievances from people, who were offered a big sum of money from the british government or a large corporate firm or someone has left them a big endowment. they are promised huge sums of money 5 million pounds or 10 million pounds, if they pay just a small fee. people end up paying once and then they fall into a trap. one payment call