Developing Countries in the Era of Financialisation: From Deficit Accumulation to Reserve Accumulation

This paper examines the effects of financialisation on developing countries by considering international capital flows and reserve accumulation. Analytical focus lies on the international financial transactions of developing countries since 2000, especially in relation to the US economy. The paper shows that international capital flows have grown substantially, while at the same time developing countries have accumulated huge international reserves. The outcome has been net flows of capital from developing to developed countries. These phenomena are analysed within a Marxist framework that stresses the role of world money as well as the tendency of capitalist finance toward crisis. It is shown that the strategy of reserve accumulation, adopted by developing countries after the financial crises of the late 1990s, was a response to speculative and unstable capital flows. The strategy has resulted in substantial social costs for developing countries because it has facilitated net international transfer of capital from the poor to the rich, instead of promoting investment for purposes of economic development. The USA was the main beneficiary of these trends, thus revealing the problematic and exploitative character of the dollar as contemporary world money.