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Thursday, 6 February 2014

What Do All Panic-Prone Emerging Markets Have In Common?

A couple of days ago, Steve Schaefer at Forbes wrote,
  • Argentina – In January, the Argentine peso fell 23 percent. The most dramatic peso depreciation since the country’s 2002 financial crisis was triggered by the central bank’s decision to stop intervening in the markets to maintain the peso’s value – intervention that was increasingly costly, draining the country’s foreign currency reserves.
  • Turkey – The Turkish lira fell 6 percent in January; at its low point, the lira was down 9 percent from January 1st. On January 28th, the Turkish central bank took action to brace the falling lira, raising its benchmark one-week lending rate for banks from 4.5 percent to 10 percent. The lira rallied, then gave up those gains, and then recovered slightly.
  • South Africa – The South African rand fell 7.5 percent in January, its weakest level since 2008. The currency continued to fall even after the central bank raised its benchmark interest rate to 5.5 percent from 5.0 percent – the first rate increase in almost six years.
  • Russia – In January, the Russian ruble fell 7 percent, hitting a five-year low. But unlike the central banks in Turkey and South Africa, which have raised interest rates in attempts to prop up their currencies, Russia’s central bank has maintained a hands-off approach.
What do all these emerging market economies have in common? A very high money supply growth rate over an extended period is the answer. 

FRED Graph

FRED Graph

FRED Graph

FRED Graph

And we need to add Chile to this list as well as it fell 5.5% in January compared to US$ (here).

FRED Graph

Related: Argentina's Consumer Price Inflation, Money Supply and the Collapsing Peso