Beyond capital controls: the regulation of foreign currency derivatives markets in South Korea and Brazil after the global financial crisis
AbstractBesides the management of capital flows, some emerging economies have been facing policy dilemmas related to foreign (nonresident) and domestic (residents) operations of Foreign Currency (FX) derivatives in the post-global crisis setting. In a context of abundant liquidity and historical low interest rates in the advanced economies, searching for yield foreign investors as well as domestic agents generally obtain huge profits, through these markets, from the interest rate differentials between advanced and emerging economies. Yet, the regulation of FX derivatives in the emerging economies has not received due attention both in the academic literature and in the international financial institutions, even though these could be crucial for the emerging economies with high degree of financial openness and liquid as well as deep FX derivatives markets, such as Brazil and South Korea. The paper aims at analyzing the Brazilian and Korean approach for FX derivatives regulation after the global financial crisis. Therefore, it seeks to contribute to the debate on financial regulation brought about by the global crisis. The two cases show the relevance of the institutional featuresof FX derivatives market for the drawing of the financial regulatory toolkit. In the case of Brazil we found that a thirdtype of financial regulation, which we have labeled as FX derivative regulation, was needed to curb the currency appreciation trend, along with capital controls and traditional prudential financial regulations.
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Bibliographic InfoPaper provided by Hochschule fuer Technik und Wirtschaft, Berlin in its series Competence Centre on Money, Trade, Finance and Development with number 1307.
Length: 38 pages
Date of creation: Oct 2013
Date of revision:
Publication status: Published in Berlin Working Papers on Money, Finance, Trade and Development, October 2013
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Web page: http://finance-and-trade.htw-berlin.de
working paper; daadpartnership; finance-and-trade;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-02 (All new papers)
- NEP-CBA-2013-11-02 (Central Banking)
- NEP-IFN-2013-11-02 (International Finance)
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