The $9
trillion (£5.8 trillion) accumulation of foreign bonds by the rising powers of
Asia, Latin America and the emerging world risks going into reverse as one
country after another is forced to liquidate holdings to shore up its currency,
threatening to inflict a credit shock on the global economy.
India’s rupee
and Turkey’s lira both crashed to record lows on Thursday following the US
Federal Reserve releasing minutes which signalled a wind-down of quantitative
easing as soon as next month.
Dilma
Rousseff, Brazil’s president, held an emergency meeting on Thursday with her
top economic officials to halt the real’s slide after it hit a five-year low
against the dollar. The central bank chief, Alexandre Tombini, cancelled his
trip to the Fed’s Jackson Hole conclave in order “to monitor market activity”
amid reports Brazil is preparing direct intervention to stem capital flight.
The country
has so far relied on futures contracts to defend the real – disguising the
erosion of Brazil’s $374bn reserves – but this has failed to deter speculators.
“They are moving currency intervention off balance sheet, but the net position
is deteriorating all the time,” said Danske Bank’s Lars Christensen…..To Read More…..
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