A welcome departure from previous rounds of tightening
The resilience of the emerging world is in part a story of maturation. Since the crises of the 1980s and 1990s, local financial markets have grown deeper and banks better managed. Policymaking has improved. Officials have learned the hazards of careless budgeting and large current-account deficits. Central banks are more independent, and have adopted the inflation-targeting approaches used in the rich world.
Emerging-market foreign-exchange regimes have also improved. These economies once relied on exchange-rate pegs to contain inflation and secure cheaper credit. But the years of crisis encouraged a move in the direction of floating-rate regimes, in which markets get more of a say over a currency’s value. Now most governments only occasionally intervene to lean against undesirably fast or big moves.
These reserves can be deployed to slow a currency’s depreciation when investor risk appetite drops. This year India has sold $40bn-worth to keep the rupee’s decline modest and orderly. Yet reserves are most valuable in the thick of a crisis, when they can be used to pay for critical imports and meet hard-currency debt repayments. Crucially, they help to reassure foreign investors that obligations will be honoured.
But after the global financial crisis, bond yields in the rich world tumbled, pushing investors to look for returns elsewhere. This hunt, combined with improved economic management in emerging markets, allowed officials to shift borrowing to local-currency bonds . In the mid-2000s, some 46% of Indonesian public debt and 83% of Chilean debt was owed in a foreign currency. By 2021 those figures had fallen to 23% and 32%.
Belgique Dernières Nouvelles, Belgique Actualités
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