Right now the biggest problem for the world economy, perhaps not a European country such as Ireland once again into a debt crisis, but not synchronize with the recovery of national economies caused by global monetary policy does not sync. This brought the inevitable result of differentiation, that is, widening spreads continuously stimulate short term capital flocked to emerging market countries from the developed countries, causing enormous inflationary pressures, and to promote the rapid appreciation of its currency; and emerging market countries in order to curb inflation have to further raise interest rates, so that the spreads continue to expand, more and more upgrades arbitrage transactions. Such a vicious circle, making the expected inflation and appreciation has been repeatedly enhanced, and ultimately achieve both self led process.
In theory, to make hot money automatically withdrawn from emerging market countries, not impossible, as long as you can to achieve one of three conditions: capital flows overseas central bank rate hikes, a sharp appreciation of the exchange rate of capital flow abroad, other capital flows abroad and developed countries, rapid economic prosperity. Be at least a couple of years, the United States and Europe clearly does not intend to or can not achieve these three changes.
From the perspective of emerging market countries, the current treatment is a clear misunderstanding of hot money is the minding : whether it is a large scale sterilized intervention or non interest bearing reserve style misappropriating pool or trying to international finance Wheel sand child , that is levied on foreign exchange transactions Tobin tax or other capital flows, taxes, operability in practice are questionable, can not fundamentally prevent the influx of hot money and asset price bubbles.
Even so, even if the emerging market countries can really manage their one third of the acres of land or the enemy out , is but a temporary phenomenon. When the hot money from an emerging market countries were driven to another emerging market countries, in fact, but a repetition of beggar thy neighbor of the ostrich. As long as the root cause of hot money has not been cut off, always lingering, lingering in front of emerging market countries, it is hard to detect. This helpless situation, or may be called emerging market countries, hot money curse. But to completely get rid of hot money curse , a clear need for all emerging market countries, a systemic solution.
United States and Europe and other developed countries and from the perspective of unrestrained laissez faire sea of hot money in the world, but also with the original intention of quantitative easing monetary policy, contrary to the dog in the manger is a typical behavior. Basic idea of quantitative easing monetary policy is through the central bank to buy long term bonds, injecting liquidity to the market in order to reduce the actual cost of credit. But a large number of short term capital outflow, making plans to increase the mobility of fall, which is why the current in the United States, publicly opposed the second quantitative easing policy (QE2) a large number of officials and scholars, including former Federal Reserve Chairman Paul Volcker, the Dallas Fed President Richard Fisher and Philadelphia Fed President Plosser and so on.
Control of the United States and Europe the right to speak of the international financial system, the current G20 only from the needs of developed countries, focusing on countries to promote domestic financial market regulation and resolution of global current account imbalances and other issues; little from the perspective of emerging market countries, the global strengthen supervision of cross border capital within the most important issues into the agenda. This is of course derived from the developed countries had nothing to do, inaccessible selfishness; more important reason is that in developed countries, it seems, on the international capital regulation is tantamount to free markets and retrogression in the globalization process, so in the sense morphology difficult to accept. This deep rooted discrimination from the language used by the Western media will be difficult to get a glimpse of the difference. They called the domestic financial and capital controls supervision ; involving cross border capital controls, they will replace the customary control the word was.
Everything has two sides, the natural regulation of transnational capital also has its positive meaning. 2007, had long advocated the liberalization of capital in the summary of IMF financial globalization over the past 30 years, the lessons, come to a useful conclusion: If a country s financial sector development and institutional quality is below an important threshold to deal with external financial liberalization remain cautious. In other words, unless you have to swim, or else do not jump into the water. Undoubtedly, the emerging market countries have applied to this advice. February of this year, IMF first time in a report to recognize the short term, the tax on capital inflows and other restrictions are useful tools and means it as a policy of effective part , thus changing the long term controls on capital flows since the bias.
However, the impact of hot money around the globe, emerging markets alone is not enough of unilateral regulation. As the initiator of hot money flooding the U.S. and Europe should also actively cooperate with other developed countries, tightening of hot money from the gate of the source. This requires not only the developed countries to pursue a more prudent monetary policy; also required to effectively bound hedge funds, mutual funds and other financial institutions speculation. Specific practices include: foreign investment for its portfolio of currency mismatch in the additional capital requirements, the implementation of certain foreign exchange derivatives margin requirements; for non deliverable forward contracts, cash flow into the country and abroad should closely monitor and control the implementation of cooperation and so on.
If developed countries are not always just take, not on the emerging market countries have borne the current plight of hot money, but merely to emerging market countries to meet their various demands put forward, then the existing value of G20 also questionable.
Author Resource:-
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