Faculty Fellow Kevin Gallagher wrote on an op-ed in support of the use of capital controls in emerging markets and the developing world in the Financial Times tying into this week’s Pardee Task Force Report, “Regulating Global Capital Flows for Long-Run Development.”
His op-ed is in part a response to Brazilian president Dilma Rousseff’s move to extend a tax on speculative inflows of capital into Brazil. Rouseff blamed industrialized countries for creating a, “liquidity tsunami.”
“The tsunami Ms Rousseff was referring to are the massive swings in capital inflows and outflows that followed the global financial crisis and the dawn of the euro crisis. Pair quantitative easing and low interest rates in the industrialised world, and relatively higher interest rates and faster growth in emerging markets, and you find some of the causes. Until the eurozone jitters, capital flows returned to emerging markets after the crisis at an alarming rate. When the euro looked like it was on the verge of collapse the winds shifted and capital fled to the safety of the US and beyond. With seemingly calmer waters in Europe, the tides have once again turned to emerging markets. This has caused significant asset and exchange rate volatility making for an uncertain climate for policy-making, investment and long-run growth alike.”
To read the whole op-ed click here.