As the dollar collapses or in the extreme case the world moves to some form of gold standard, it will be wise for countries to have larger assets in gold, as higher the store of gold, the bigger will be their bargaining power.

China, Japan and other Asian countries are piling up dollars and this has reached such a precarious situation that one move to diversify from the dollar by any of these countries can move the dollar to its ruins.

We in India have also seen a deluge of dollars. This is mainly due to RBI buying from the market to keep Indian exports competitive. India's reserves have reached great proportions. Holding such a level of reserves cannot be justified by any stretch of imagination as these primarily end up financing the US current account deficit. RBI's frequently referred parameters like the Greenspan-Guidotti Rule or for that matter the famed `Liquidity-at-Risk' have been exceeded.

The profitable use of India's bourgeoning forex reserves has been in public debate for some time. A thought-provoking idea was put forth by Montek Singh Aluwalia, the Planning Commission Vice-Chairman, when he suggested plugging the country's infrastructure deficit by using them. This essentially was a mechanism in the deficit financing mode but internal balance was maintained by containing inflation with expenditure switching policies like keeping the price of tradable down by decreasing the import duties (anyway we want to touch the Asean level of tariffs) or by appreciating the rupee.

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