A study by the Reserve Bank of India (RBI) has spoken about the possibility of capital outflows to the tune of $100 billion (around Rs 7,80,000 crore) from India in case of a major global risk scenario or a “black swan” event.
What is a ‘black swan’ event?
- A black swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world.
- These events are said to have three distinguishing characteristics – they are extremely rare and outside the realm of regular expectations; they have a severe impact after they hit; and they seem probable in hindsight when plausible explanations appear.
Origin of the term –
- The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001, and later popularised in his 2007 book – The Black Swan: The Impact of the Highly Improbable.
- In his book, Taleb does not try to lay out a method to predict such events, but instead stresses on building “robustness” in systems and strategies to deal with black swan occurrences and withstand their impact.
- The term itself is linked to the discovery of black swans. Europeans believed all swans to be white until 1697, when a Dutch explorer spotted the first black swan in Australia. The metaphor ‘black swan event’ is derived from this unprecedented spotting from the 17th century, and how it upended the West’s understanding of swans.
When have such events occurred in the past?
Interestingly, Taleb’s book predated the 2008 global financial crisis – a black swan event triggered by a sudden crash in the booming housing market in the US. The fall of the Soviet Union, the terrorist attack in the US on September 11, 2001, also fall in the same category.
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