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Financial globalisation and emerging market capital flows


  • Bank for International Settlements


The focus of Deputy Governors when they met for their annual meeting at the BIS in January 2008 was on the great expansion of the role of emerging market economies (EMEs) in the international banking and capital markets. The deeper integration of EMEs is seen in the rapid growth in their gross non-official inflows and outflows . The papers written for this meeting - three background papers by BIS staff members and the country-specific papers prepared at the central banks of 19 EMEs - tackle several topics related to the growth in capital flows. Some issues were thrown into sharper focus by the severe market stress in the fourth quarter of 2008. The topics covered include: 1. The great increase in capital outflows of EMEs and growth in sovereign wealth funds, changes in the volatility of capital flows, and the challenges posed in analysing the risk exposures created by different forms of capital flow; 2. Exchange rate-sensitive capital flows and the implications of greater development and foreign participation in local currency debt markets; exchange rate volatility and foreign exchange market intervention; 3. Increased cross-border bank flows and their implications for financial stability, including credit growth, liquidity risks and currency mismatches; 4. Financial and capital account reforms. The trend has been towards capital account liberalisation with some recent reversals; 5. Pension funds and demographic trends. Ageing trends should lower national saving rates and reduce current account surpluses in EMEs but precautionary motives for saving plus related fiscal and asset accumulation policies could offset these effects, at least for a time. The rapid growth in pension fund assets appears to have help to deepened some financial markets. This could be enhanced if pension portfolios were diversified further, including internationally; 6. More liquid EME markets. A recurrent theme of the meeting was the deepening of local money and capital markets. In particular, the development of derivatives markets in the EMEs has been helped by the very strong growth the spot foreign exchange market for EME currencies and the increase in local currency domestic bonds outstanding.

Suggested Citation

  • Bank for International Settlements, 2008. "Financial globalisation and emerging market capital flows," BIS Papers, Bank for International Settlements, number 44.
  • Handle: RePEc:bis:bisbps:44

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    References listed on IDEAS

    1. Badi H. Baltagi & Panicos O. Demetriades & Siong Hook Law, 2007. "Financial Development, Openness and Institutions: Evidence from Panel Data," WEF Working Papers 0022, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
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    5. Charles Bean, 2007. "Globalisation and Inflation," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 57-73, January.
    6. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
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    8. Joe Peek & Eric S. Rosengren, 2000. "Implications of the globalization of the banking sector: the Latin American experience," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-62.
    9. Hans Degryse & Olena Havrylchyk & Emilia Jurzyk & Sylwester Kozak, 2008. "The Effect of Foreign Bank Entry on the Cost of Credit in Transition Economies. Which Borrowers Benefit the Most?," Working Papers 2008-15, CEPII research center.
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    1. Moreno, Ramón, 2011. "La formulación de políticas desde una perspectiva macroprudencial en economías emergentes," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 22, pages 21-40.

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