Financial globalisation and emerging market capital flows

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.

JEL classification: F21, F32, F37, G21, G23

BIS background papers

	Title	Languages
	Financial globalisation and emerging market capital flows by Philip Turner	EN
	The financial stability implications of increased capital flows for emerging market economies by Dubravko Mihaljek	EN
	Pension systems in EMEs: implications for capital flows and financial markets by Ramon Moreno and Marjorie Santos	EN
	Hedging instruments in emerging market economies by Sweta C Saxena and Agustin Villar	EN

Contributed papers

	Title	Languages
	Capital flows, economic performance and exonomic policy: Argentina's experience during the last decade by Miguel Angel Pesce	EN
	Capital flows to the Brazilian economy: 2003-07 by Katherine Hennings and Mário Mesquita	EN
	Financial implications of capital outflows in Chile: 1998-2008 by Jorge Desormeaux, Karol Fernández and Pablo García	EN
	China: the evolution of foreign exchange controls and the consequences of capital flows by People`s Bank of China	EN
	Capital flows and financial assets in Colombia: recent behaviour, consequences and challenges for the central bank by Hernando Vargas and Carlos Varela	EN
	The Czech experience with capital flows: challenges for monetary policy by Luděk Niedermayer and Vít Bárta	EN
	Capital flows into and out of Hong Kong SAR: implications for monetary and financial stability by Hong Kong Monetary Authority	EN
	Retail credit expansion and external finance in Hungary: lessons from the recent past (1998-2007) by Júlia Király, Judit Antal, Márton Nagy and Viktor Szabó	EN
	Capital flows to India by Rakesh Mohan	EN
	Capital flows in Indonesia: challenges and policy responses by Miranda S Goeltom	EN
	Tewnty years of financial liberalisation in Israel: 1987-2007 by Zvi Eckstein and Tamar Ramot-Nyska	EN
	Capital flows and effects on financial markets in Korea: developments and policy responses by Byung Chan Ahn	EN
	Capital flows and financial assets in emerging markets: determinants, consequences and challanges for central banks: the Malaysian experience by Ooi Sang Kuang	EN
	The impact of international financial integration on Mexican financial markets by José Julián Sidaoui	EN
	Macroeconomic implications of capital inflows: Peru 1991-2007 by Renzo Rossini, Zenon Quispe and Rocío Gondo	EN
	Capital flows and financial assets in the Philippines: determinants, consequences and challenges for the central bank by Celia M Gonzalez	EN
	Capital flows and their implications for monetary and financial stability: the experience of Poland by Jerzy Pruski and Piotr Szpunar	EN
	Capital flows and financial assets in emerging markets: determinants, conswquences and challenges for central banks by Muhammad Al-Jasser and Ahmed Banafe	EN
	Thailand's experiences with rising capital flows: recent challenges and policy responses by Yunyong Thaicharoen and Nasha Ananchotikul	EN
	Capital flows to Turkey: financial implications and policy responses by Mehmet Yörükoğlu and Ali Çufadar	EN