not obviously accomplish. we need to communicate how we are likely to react to the different types of shock that can drive the economy away from its steady state path. a complete specification is not feasible. we do not have a 100 % correct model of the economy. and policy cannot sensibly be described by a simple mechanical rule but, rather, is determined by the judgment of policy makers, with the composition of the one person / one vote committee evolving over time. but at any particular time, some possible shocks – and so sources of risk to the inflation outlook – seem more important than others. as the governor has announced, 29 the mpc is therefore planning to do more to explain our collective assessment of risks. before i was a member of the mpc, i was on the secretariat, so i have attended nearly every mpc meeting since 1997. see response to question 285 in oral evidence to the house of commons treasury select committee inquiry on “ the monetary policy committee of the bank of england : ten years on ”, april 2007. king, m. a. 2007, “ the mpc ten years on ”, lecture to the society of business economists, may. communications about the transmission mechanism, and the place of money within it grasping our reaction function requires an understanding of how we think the economy works. in its early years, the mpc published a collective document on the monetary transmission mechanism. 30 and, as part of its evidence to the select committee ’ s “ ten years on ” enquiry, we recently submitted a collective document on how the economy has developed over the past decade. 31 much of it is uncontroversial. one issue has, though, come to the fore recently : money. money is a good example of how the political economy context affects the outward form of policy regimes. in the euro area, it was vital for the ecb to do what it could to inherit the credibility of the bundesbank, and so it was understandable that the special place of money in the buba ’ s communication strategy was adopted by the ecb. i had first hand evidence of this when i was a member of the monetary policy sub - committee of the emi during the mid - late 1990s ( and so before the uk had decided not to join emu ). a colleague from one of the national central banks said to me after one of the deliberations, “ of course you guys have the better arguments about monetary strategy, but we will back the

. as per the bis global survey the percentage share of the rupee in total turnover covering all currencies increased from 0. 3 percent in 2004 to 0. 7 percent in 2007. as per geographical distribution of foreign exchange market turnover, the share of india at $ 34 billion per day increased from 0. 4 in 2004 to 0. 9 percent in 2007. the activity in the forex derivative markets can also be assessed from the positions outstanding in the books of the banking system. as of august end, 2007, total forex contracts outstanding in the banks'balance sheet amounted to usd 1100 billion ( rs. 44 lakh crore ), of which almost 84 % were forwards and rest options. as regards interest rate derivatives, the inter - bank rupee swap market turnover, as reported on the ccil platform, has averaged around usd 4 billion ( rs. 16, 000 crore ) per day in notional terms. the outstanding rupee swap contracts in banks ’ balance sheet, as on august 31, 2007, amounted to nearly usd 1600 billion ( rs. 64, 00, 000 crore ) in notional terms. outstanding notional amounts in respect of cross currency interest rate swaps in the banks ’ books as on august 31, 2007, amounted to usd 57 billion ( rs. 2, 24, 000 crore ). the size of the indian derivatives market is clearly evident from the above data, though from global standards it is still in its nascent stage. broadly, reserve bank is empowered to regulate the markets in interest rate derivatives, foreign currency derivatives and credit derivatives. until the amendment to the rbi act in 2006, there was some ambiguity in the legality of otc derivatives which were cash settled. this has now been addressed through an amendment in the said act in respect of derivatives which fall under the regulatory purview of rbi ( with underlying as interest rate, foreign exchange rate, credit rating or credit index or price of securities ) provided one of the parties to the transaction is rbi, a scheduled bank or any other entity regulated under the rbi act, banking regulation act or foreign exchange management act ( fema ). current regulatory framework in the light of increasing use of structured products and to ensure that customers understand the nature of the risk in these complex instruments, rbi after extensive consultations with market participants issued comprehensive guidelines on derivatives in april 2007, which cover the following aspects : • participants have been generically classified into two functional categories, namely, market - makers and users, which would