Kevin P. Gallagher, Financial Times, October 20, 2010
Triple Crisis blogger Kevin P. Gallagher was invited to submit an article for the Financial Times as part of a three-way debate on the use of capital controls. His piece begins below, and you can read the full article at Financial Times, as well as the other positions written by Guillermo Calvo and Gerard Lyons. For more on the issue from Triple Crisis, see Ilene Grabel’s recent post, and other contributions on capital controls. Read more on Gallagher’s work on issue for the Global Development and Environment Institute.
Emerging markets have their hands full trying to stem currency appreciation and asset bubbles due to their higher interest rates and formidable economic recoveries relative to the west. The situation will only worsen as world leaders continue to fail to reform global finance and the US moves to another round of quantitative easing.
In times like this, capital controls have regained their legitimacy as a tool emerging markets can resort to.
One can make the argument that many emerging markets eventually need to let their currencies appreciate, in real terms. But flows of speculative capital that stop and start suddenly are a destabilizing way to that end….