The Great Debate

(James Saft is a Reuters columnist. The opinions expressed are his own)

Easy money in the United States, a falling dollar and growing flows of funds seeking better returns in emerging markets are touching off a new round of capital controls in hot emerging markets, a trend that could accelerate and will at the very least increase market volatility.

It shouldn’t be a surprise, really; loose money in the developed world is helping to spur investment into emerging markets, driving currencies up and making local exports less competitive for countries which, unlike China, aren’t hitching a free ride as the dollar declines.

Inflation may be a threat for many of these, but with the global economy still struggling, it certainly won’t feel that way to policy makers.

Russia on Wednesday joined the list of countries eyeing new measures to stem currency speculation and appreciation. Moscow was careful to say it would not impose actual capital controls, which seek to regulate flows of funds into or out of an economy, but the measures they are considering would have exactly that effect, making it tougher or more expensive for money borrowed abroad to be brought into Russia.

Kazakhstan, which has been intervening actively to slow the ascent of its tenge currency, has introduced legislation allowing capital controls, but so far has not used them.

– Wei Gu is a Reuters columnist. The opinions expressed are her own –

China has talked about plans to allow foreign companies to float on its domestic stock markets for at least a decade, but that’s all there has been: talk.

Now would be a good time to convert some of that talk into action. Beijing has been struggling with its own investment strategies: the state gets feeble returns on the U.S. Treasury bonds it owns, and its equity stakes in foreign financial firms are well under water.

– Wei Gu is a Reuters columnist. The opinions expressed are her own –

When foreign strategic investors were invited to take stakes in Chinese banks, the word “strategic” had a clear meaning for their hosts.

The banks were supposed to stay in for the long term, and that’s why they had the chance to buy big stakes at bargain prices. Yet many have behaved like “foreign speculative investors”, as they are now called in China — they took the cheap deal and then flipped the shares for a fast profit.