'Full convertibility not a good idea'

India has done the right thing by not opting for a full float of its currency, according to Gail D Fosler, executive vice-president and chief economist of the Conference Board.

"An emerging market going in for capital account convertibility is like a kid trying cocaine. It is one of those things that feels good. But it is like enslaving an economy to factors over which it has absolutely no control," Fosler told Business Standard

"An emerging market has no control of cross-border capital flows, which are double that of the intra-country activity," she added.

According to Fosler, Asian countries like India and China should refrain from allowing their domestic currencies to be globally traded.

Fosler also offered a refreshingly different view from those who have been predicting doom for the dollar. She said the dollar would rebound and in 18 months would be at par with the euro.

Fosler has twice been named America's most accurate economic forecaster by The Wall Street Journal.

During the Asian financial crisis of 1997-98, Asian currencies had slumped by as much as 50 per cent against the dollar, turning these economies upside down, Fosler pointed out.

On India's failure to attract more foreign direct investment (FDI), she said: "China gets 10 times more FDI than India. But the best practices of growth are not seen outside of the foreign sector in China and there is concern that China is over-dependent on foreign capital. India indeed needs more FDI, but the underpinnings of Indian companies are stronger than those of their Chinese counterparts."

According to Fosler, China is a great macroeconomic story, but a weak microeconomic one, while India is exactly the opposite.

Though most economists and experts worldwide are talking down the dollar, Fosler is extremely bullish on the global reserve currency.

"In 18 months' time, I see the dollar-euro at 1. The dollar-euro is today trading at 1.32. The dollar has slipped by 35 per cent against the euro over the past three years," Fosler said.

She forecasts that there will be a dual global currency system "" the dollar and the euro.

"Fears of companies jettisoning dollar assets are unwarranted. There will always be a demand for dollar and euro assets."

Many Asian central banks and private companies are slowly shifting their assets from the dollar to euro-denominated ones.