use the vast unused potential in people and produce “ leaders ” out of “ managers ” who can not only work hard but also motivate their co - workers for producing extraordinary results. the sector needs to recognize the transformation in the factors of production in the banking industry early and aim to effectively harness these new factors for its own betterment and, more importantly, in the bis central bankers ’ speeches interest of the society. by effectively utilizing these new factors of production, the sector could quickly bring in more and more financially excluded people under the ambit of the formal banking system and help it to be seen as a relevant and purpose - oriented sector. promoting financial literacy 23. in today ’ s digitized world, stating that information is power, is perhaps to state a truism. our economy is traversing towards being a knowledge economy. this is amply demonstrated by the contribution of services sector in our economy. however, much as we would hate admitting it, we are a financially illiterate society. and here, i am not talking about the common man alone. the financial illiteracy is all pervasive – the banks, the regulators, the policy makers – all suffer from some degree of financial illiteracy. let me quote a few examples to drive home my point. take the recent instances where banks had sold forex derivatives to their customers without proper understanding of their suitability and appropriateness. neither the customers nor the banks had an iota of understanding of the quagmire that they were getting into while entering into these contracts. the subsequent legal wrangling and losses suffered by some of the banks aptly demonstrate their financial illiteracy. take the case of the benchmark prime lending rate ( bplr ), which was, till recently, used by the banks for lending to their borrowers. my understanding of the bplr is that it is the rate at which the bank lends to its best borrowers i. e. those borrowers who are least likely to default on their loans. however, for years together, the banks continued to lend to their borrowers well below their bplr until the regulator introduced the base rate regime. another conundrum that needs to be solved is one surrounding the gold import. though many of us have realized its implications for the current account deficit, there have not been very sincere efforts to check its imports. we need to examine why public money should be utilized for importing gold by banks. i firmly believe that

even the existing limit is not used up. there is something out there we have to fix about the appetite for the corporate bond market. it ’ s not a restriction placed on the capital account front. as far as fii on government debt, yes certainly, we have expanded that quite rapidly in the last three or four years, but there is need for going a bit more cautiously, because as we ’ ve seen during the crisis, countries with large sovereign debt exposure to foreigners suffered destabilizing volatility. so we need to balance the concerns of stability with concerns of less expensive foreign flows. wsj : when you take over in 2008 did you make a conscious decision to take a more hand ’ s off approach when it comes to foreign exchange interventions? subbarao : that ’ s a judgment outsiders will have to make. by inclination, i believe that markets should be allowed to function and that we should minimize our intervention and that ’ s good for building the resilience of the economy. wsj : but it does help on the monetary policy side, as a flexible exchange rate makes your interest rate policy more potent? subbarao : certainly. that ’ s very fresh in my mind. i gave a speech last week on the impossible trinity, so to the extent you have a freely floating exchange rate you have greater, more independent monetary policy. wsj : are you satisfied with the intervention you undertook last year on the foreign exchange market? subbarao : yes. i would think so, especially on speculation. if you don ’ t intervene, the speculative forces could be self reinforcing which is that exporters would defer bringing their receipts in and importers would buy forwards. that ’ s a self - reinforcing feedback loop. to the extent that we curbed speculation and showed that determination, it certainly helped. wsj : so 54 rupees to the dollar was a level you weren ’ t comfortable? subbarao : i can ’ t really comment on a specific exchange rate. we were looking at the first derivative, not the stock figure, but the rate at which it was going. wsj : are these foreign exchange measures temporary, do they fit in you capital account liberalization trajectory? subbarao : some of them do fit in with our capital account thinking. some of the measures to curb speculation, they are permanent until removed, but that ’ s not saying much. we ’ d have to take