mentioned that a worldwide consensus on several issues was still evolving. today, while “ consensus ” may be too strong a word, i believe that there is a fair degree of convergence in the dominant international opinion among experts and various specialised institutions on many of these issues. let me summarise some of the main conclusions which have emerged in the last 2 or 3 years on the management of the external sector. once again, i should emphasise that, given widely different economies of the world that we are talking about, there is no global consensus as such or unity of views. however, at present, as i see it, there is certainly a “ dominant ” view of what is right and appropriate, which is increasingly commanding international acceptance. thus, on the question of the appropriate exchange rate regime, a fixed exchange rate regime ( even with a currency board ) is clearly out of favour. the brazilian and argentinian crisis, after the asian crisis, came as a rude shock. even strong currency board type arrangements of a fixed peg vis - a - vis dollar were found to be unviable. you will recall that, soon after the asian crisis, the widely accepted theoretical position was that a country had the choice of either giving up monetary independence and setting up a currency board or giving up the stable currency objective and letting the exchange rate float freely so that monetary policy could then be directed to the objectives of inflation control. there is a shift in this paradigm. the possibility of having a viable fixed rate mechanism has been generally discarded, and the dominant view now is that, for most countries floating or flexible rates are the only sustainable way of having a less crisis - prone exchange rate regime. in regard to the desirable degree of flexibility in exchange rates, opinions and practices vary. but a completely “ free ” float, without intervention, is clearly out of favour except perhaps in respect of a few global or reserve currencies. and, in respect of these currencies also ( say, euro and dollar ), concerns are expressed at the highest levels if the movement is sharp in either direction - recently, for example, when euro was strengthening at a fast pace. studies by the imf and several experts also show that by far, the most common exchange rate regime adopted by countries, including industrial countries, is not a free float. most of the countries have adopted intermediate regimes of various types, such as, managed floats with no pre - announced path, and independent floats with foreign exchange intervention moderating the rate of

flows or the “ liquidity - at - risk ”. ( however, there is as yet no consensus on the upper limit for reserves. even after an “ adequate ” level is reached, reserves may continue to increase if capital inflows are strong and central banks decide to intervene in order to moderate the degree of appreciation. ) to sum up, it seems that the debate on appropriate policies relating to forex markets has now converged around some generally accepted views. among these, as i mentioned are : ( a ) exchange rates should be flexible and not fixed or pegged ; ( b ) countries should be able to intervene or manage exchange rates - to at least some degree - if movements are believed to be destablising in the short run ; and ( c ) reserves should at least be sufficient to take care of fluctuations in capital flows and “ liquidity at risk ”. let me now briefly deal with some issues of practical importance in the management of forex markets in india, which have figured prominently in the media and expert commentary. i will first take up 2 or 3 matters which are rather straight - forward and on which our policy stance is also equally “ unambiguous ” and clear - cut. then i will move to, and conclude with, a discussion of the appropriate exchange rate policy for india in the current situation. a frequently discussed question is about capital account convertibility ( cas ), i. e. when is india going to move to full cac? as you are aware, we have already liberalized and deregulated a whole host of capital account transactions. it is probably fair to say that for most transactions which are required for business or personal convenience, the rupee is, for all practical purposes, convertible. in cases, where specific permission is required for transactions above a high monetary ceiling, this permission is also generally forthcoming. it is also the declared policy of the government and the rbi to continue with this process of liberalization. in this sense, capital account convertibility continues to be a desirable objective for all investment and business related transactions and india should be able to achieve this objective in not too distant a future. there are, however, two areas where we would need to be extremely cautious - one is unlimited access to short - term external commercial borrowing for meeting working capital and other domestic requirements. the other area concerns the question of providing unrestricted freedom to domestic residents to convert their domestic bank deposits and idle assets ( such as, real estate ), in