Financial Stability in Emerging Markets - Dealing with Global Liquidity

Veranstaltungsart
Workshop

Ort / Datum
Beijing, 21.10.2011

German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), Deutsche Gesellschaft für internationale Zusammenarbeit (GIZ), Central University of Finance and Economics (CUFE)

Background
Most emerging market economies have weathered the global financial crisis reasonably well and their recoveries have been faster and more sustained than in most advanced economies. While the central banks of the major advanced economies continue their expansionary monetary policy aimed at stabilising financial sectors and economic recovery, emerging economies have already started with monetary tightening. The resulting widening of interest rate differentials between currencies and the associated carry trade are now leading to an inflow of short-term capital to emerging economies with higher yields. Debt problems in European countries and the US further increase the attractiveness of channelling investment to emerging economies. These capital inflows create inflationary pressure as well as appreciation pressure on currencies. The latter has lead to fears of a currency war with beggar-thy-neighbour policies and competitive non-appreciation.

Moreover, excessive capital inflows increase the risk of fuelling new asset price bubbles in financial and real estate markets in emerging economies and might create severe problems in case of a sudden stop or reversal of capital flows. Against this backdrop, the workshop will discuss the risks originating from excess global liquidity for inflation and the development of new bubbles in emerging economies. It will analyse how emerging economies can respond to capital flows through capital account and exchange rate management and macroprudential regulation and discuss the associated challenges for international monetary cooperation. It will also address the specific policy options for countries with high savings surpluses, such as China and Germany, taking into account the Mutual Assessment Process and the commitment for coordinated policy action in the framework of the G20.

Conference Concept
This CUFE-GIZ-DIE-dialogue brought together policy makers and policy advisors from relevant public institutions and academic research from China and other Asian countries with their peers from international and German bodies to discuss the challenged posed by global liquidity and international capital flows to emerging economies. It provided a platform for mutual learning and peer-to-peer discussion about the challenges for strengthening global economic cooperation and securing financial market stability and development in order to enable global growth and sustainable development. The workshop placed particular emphasis on an exchange between government officials and academics to address the public policy-oriented issues related to macroeconomic and financial stability and global economic governance.

The in-depth exchange of academic and policy analysis helped to shape policy responses to the challenges of global liquidity and the adverse effects of capital flows to emerging countries. The discussion on policy alternatives and networking opportunities offered a starting point for future coordinated action by devising cooperative policies on the national level as well as in the framework of the G20 and in multilateral institutions. The workshop generated ideas for future policy cooperation.




For inquiries about the conference, please contact Ulrich Volz.

Hinweis

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