In These New Times

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Chinese official calls for developing countries to impose capital controls

Posted by seumasach on November 5, 2010


5th November, 2010

The Federal Reserve this week said it will pump $600bn (£370bn) into the economy through debt purchases – effectively printing more dollars – to boost employment and growth.

Asian nations fear the effects of extra cash pumping through the financial system, as traders turn from ailing Western economies to the growing Asia-Pacific region to get a better return on their dollars


Global stock markets, which surged ahead of the anticipated stimulus, jumped again on Thursday and Friday. In Asia, Japan’s Nikkei 225 jumped 2.9pc, Australia’s S&P/ASX 200 added 1.2pc, Hong Kong’s Hang Seng 1.3pc and China’s Shanghai Composite 1pc.

However, the Fed’s plan has weakened the dollar further pushing up Asian currencies and heigthening the risks of a currency war. South Korea, Brazil and Indonesia among others have intervened unilaterally in recent weeks to curb the rise in their currencies.

The weakening greenback has prompted warnings of a wave of protectionism and capital control measures by Asian nations to stave off so-called hot money, potentially inflaming tensions ahead of next week’s Group of 20 summit in South Korea.

Xia Bin, a member of the Chinese central bank’s monetary policy committee, branded the stimulus plan “abusive” and warned it could spark a new global downturn.

“If there is no restraint in issuing major global currencies such as the US dollar, the occurrence of another crisis is inevitable,” he said in a Beijing News report.

He called on developing countries to impose capital control measures to “prevent hot money inflows from impacting their economy”.

The Bank of Korea warned that inflows of foreign cash had gathered pace in recent months but could abruptly change direction.

A senior finance ministry official said Seoul would “actively” seek further ways to curb excessive inflows. Foreign investment in South Korean bonds, which plunged after the 2008 collapse of financial services firm Lehman Brothers, started rising in the second half of last year.

Yoon Jeung-Hyun, the Finance Minister, said the government was considering various measures, including a tax on foreign investment in treasury bonds.

Japanese Finance Minister, Yoshihiko Noda, said on Friday that he would keep a “very close eye” on the US moves amid concerns that the yen, which is already at 15-year highs against the dollar, could surge further.

Tokyo stepped into currency markets in September for the first time in six years to try to cap the yen’s rise, which has hammered exporters, seen as key to Japan’s recovery.

Hong Kong Financial Secretary, John Tsang, said the extra money flows would “bring more pressure on our stock and property market” and added: “We will look at the situation closely in the short term.”

Indonesia’s central bank said it viewed foreign capital inflows as a greater threat than price inflation in Southeast Asia’s biggest economy, as it kept its key interest rate unchanged at a historic low of 6.5pc.

Bank Indonesia also ordered commercial banks to raise their reserves to absorb excess funds and stem inflationary pressures. That followed moves in July to curb short-term foreign inflows and reducing the risk of sudden outflows.

Thai Finance Minister Korn Chatikavanij said the country’s central bank governor was “in close talks with his Asian counterparts and if there is a continuous inflow of capital into regional economies, we will put in place measures to curb speculation and prevent serious volatility”


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