16.4         ndian      onom
     borrowing6 can be done by the member nation—                 weight of gold. However, this British proposal
     India signed this agreement in the fiscal 1981–82.           could not prevail against the interests of the
     India has been borrowing from the IMF due to                 United States, which at the Bretton Woods
     critical balance of payment (BoP) situations—                conference established the US Dollar as the world
     once between 1981–84 (SDR 3.9 billion) and                   key currency. Milton Friedman9, the famous
     next during 1991 (SDR 3.56 billion). All the                 US economist insisted that Keynes’ theories
     loans taken from the IMF have been repaid. India             were incorrect who believed that, ‘inflation was
     is now a contributor to the IMF as it participates           highly destructive and that only monetary policy
     in the Financial Transactions Plan (FTP)7 of the
                                                                  could control it and that monetary policy is a
     IMF since September 2002—at this time India
                                                                  heavyweight instrument and cannot be used for
     was in strong balance of payment situation and in
                                                                  short-term economic management.’
     a comfortable forex reserves position.
                                                                       Since the outbreak of the financial crisis in
     current us/eu finAnciAl crises: chAllenges                   2008 Keynes’s proposal has been revived—
     regArDing internAtionAl PAyments                             in a speech delivered in March 2009 entitled
                                                                  Reform the International Monetary System, Zhou
     The recent financial crises of the US and the EU
     nations have raised the questions of the challenges          Xiaochuan, the Governor of the People’s Bank of
     of international payments once again. At this                China called Keynes’s bancor approach farsighted
     crucial juncture, the world seems tossing the                and proposed the adoption of International
     idea of a reserved currency for all international            Monetary Fund (IMF) special drawing rights
     payments—as if the famous Keynesian idea of                  (SDRs) as a global reserve currency as a response
     such a currency (Bancor) is going for a kind of              to the financial crisis of 2007–2010. He argued
     revival. The Bancor was a supranational currency             that a national currency was unsuitable as a global
     that John Maynard Keynes and E. F. Schumacher8               reserve currency because of the Triffin dilemma10
     conceptualised in the years 1940–42 which the                —the difficulty faced by reserve currency issuers
     United Kingdom proposed to introduce after                   in trying to simultaneously achieve their domestic
     the Second World War. The proposed currency                  monetary policy goals and meet other countries’
     was, viz., be used in international trade as a unit          demand for reserve currency.11 A similar analysis
     of account within a multilateral barter clearing             was articulated in the Report of the United
     system, the International Clearing Union, which              Nation’s Experts on Reforms of the International
     would also have to be founded. The Bancor was
                                                                  Monetary and Financial System12 as well as in a
     to be backed by barter and its value expressed in
                                                                  recent IMF’s study.13
        6.  Such facility from it is available once the member
                                                                     9.  M. Friedman., (1968) The American Economic Review,
            country has signed the agreement with the IMF called
                                                                         Vol. 58, No. 1, pp. 1-17.
            as the Extended Fund Facility (EFF). Popularly, this
            is known as the ‘Conditionalities of the IMF’ under     10.  Zhou Xiaochuan, ‘Reform the International Monetary
            which India started its Economic Reform Programme            System’, BIS Review 2009, Bank of International
            in 1991-92 once it borrowed from the IMF in the wake         Settlements, Basel, Switzerland, 28 November, 2011.
            of the BoP crisis of 1990–91.                           11.  Zhou Xiaochuan, Financial Times, 12th Dec. 2011.
        7.  FTP is the mechanism of the IMF through which           12.  Recommendations by the Commission of Experts of
            it finances/repays its operations—member nations             the President of the General Assembly on reforms of
            contribute money into it from their ‘quota resources’        the international monetary and financial system,   ,
            on which they get ‘interest’.                                20th March, 2009.
        8.  E. F. Schumacher, Multilateral Clearing Economica,      13.  Reserve Accumulation and International Monetary
            New Series, Vol. 10, No. 38 (May, 1943), pp. 150-165.        Stability, IMF, Washington DC, 13th April, 2010.