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Short-term Capital, Streaming and Steaming

By Andy Xie
 

Emerging economies need to and will likely increase interest rates and tighten capital controls. The G-20 ministerial meeting in Seoul didn't solve any problems. The communique promised that the G-20 countries would not engage in competitive devaluations and limit current account surplus.

But the source of the global currency market instability is the U.S.'s strong preference for using monetary policy to solve economic problems, effective or not, and the dollar is the currency of global trade and for commodity pricing. Political trends in the U.S. are moving in a direction less favorable to the strength of the dollar and, hence, the global currency market instability.

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