Monetary policy announcements were never more personal. There I was, on February 10, anxiously looking at the tulip pot in my garden. It had been a good 10 days and simply no sign of greenery. ‘Tulip bulbs require cold weather for best results’ claimed the packaging pompously. One of my gardener friends had told me to plant the bulbs and then put the pot in the refrigerator. ‘It wants to be in Netherlands!’, she said in a fake Angrez accent.

Do the Dutch really talk like that, I had thought irritatedly. In January, I ceremoniously planted the tulip bulbs (you need ceremony, they are damn expensive) and then created space in the nether-lands of an already crowded refrigerator. The family was following the whole thing with complete disbelief. ‘Errr, are you sure it can stand being next to the humble Indian baingan kaa bhartaa?’ quipped the hubby.

I simply gritted my teeth and sang a Beatles number to it, hoping the Dutch wouldn’t really mind the British. I also decided to water it using ice-cubes, prompting the family into nicknaming the yet-to-flower tulips as the ‘icebucketulips’.

After putting up a brave fight for 20 days, the pot was finally taken out into the garden, wherein the Pune weather would hopefully remind it of gentle spring. Nothing. Day 10 and still nothing, when suddenly, my tulip musings were interrupted by all business channels talking about — tulips!

In the first Monetary Policy statement after the Union Budget, the RBI Governor has taken a strong stance against cryptocurrencies, saying that they lacked the underlying value of even a tulip! I bristled. Not even a tulip? If you ask me, tulip is seriously high value in India — the cost of bulbs, slow-release fertiliser, the cost of electricity for storing it in the fridge, nothing to say of the imputed cost of bearing barbed insults from family, music and the anxiety! But of course, what the RBI Governor was referring to was the Tulip Mania episode (1634-37).

Looking back

In the 17th Century, Amsterdam was the leading commercial centre of the world. Several new financial products (shares, insurance, forward contracts) and institutions (the world’s first ever stock exchange and stock market) heralded the financial revolution in the Netherlands. This was led by the acute and sharp acumen of the merchants of Dutch East India Company, which is the world’s first formally listed public company.

These merchants led voyages eastwards with profit rates as high as 400 per cent! In one of these voyages, it is believed that the tulip was brought home from Turkey. Such deep colours, unknown to Europeans, caused a lifestyle craze in an economy that boasted very high GDP rates. To their delight, the exotic flower took to the climatic conditions of the Netherlands very well.

Initially a rarity, tulips quickly became a rage and a status symbol. Bulbs were traded between June and September in the ‘spot’ market and the prices offered by the growers rose with each season. This was fuelled by demand for the tulip from other European countries, so growers could neutralise high input costs through export profits.

By 1635, the price of a single bulb was more than the annual wage of a skilled labourer in the Netherlands! Some growers now started buying in order to sell at even higher prices later — growers turned traders. It was impossible that the Dutch traders, with their appetite for financial products, would not turn speculators. Speculators got into futures, deciding the price today for delivery at end of the season. There were no physical deliveries involved and bulb prices on futures and spot markets spiralled up madly, led by spiralling but now plateauing prices of tulips.

In 1637, the spot market collapsed as no grower was willing to buy the bulbs at such inflated prices. Traders were left holding bulbs that were now trading at a fraction of the price at which they had been bought. Buyers reneged on futures contracts. The bubble burst and the tulip mania came to an end.

In the world of finance, the mention of the tulip triggers reference to an asset bubble that is backed by something inherently exotic but unstable. Crypto is now super-tulip, since it has features of an asset bubble but nothing underlying it — not even a tulip. The RBI will do well to support the Government in terms of coming out with a regulation policy in this space.

In the meanwhile, my personal tulip mania continues — under the Solana of February, I am hoping to see some of the promised Ethereum, err, ethereal beauty sprouting out Bit-by-Bit from the pot. After all, it does have an underlying tulip.

The writer is a brave economist trying to laugh against the odds