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Playing with FireDeepened Financial Integration and Changing Vulnerabilities of the Global South$
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Yilmaz Akyüz

Print publication date: 2017

Print ISBN-13: 9780198797173

Published to Oxford Scholarship Online: July 2017

DOI: 10.1093/oso/9780198797173.001.0001

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External Vulnerabilities

External Vulnerabilities

Chapter:
(p.133) 4 External Vulnerabilities
Source:
Playing with Fire
Author(s):

Yilmaz Akyüz

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198797173.003.0004

The deepened financial integration of EDEs has heightened their susceptibility to global financial shocks and increased the instability in their credit, assets, and currency markets. It has led to significant loss of autonomy over monetary policy and the entire spectrum of interest rates. At the same time, these countries are said to have become more resilient because they have adopted more flexible exchange rate regimes, accumulated large stocks of international reserves, and reduced their exposure to the exchange rate risk by shifting from foreign currency to local currency debt. This chapter critically examines these contentions and concludes that none of these practices provides adequate protection against external financial shocks, taking into account the new vulnerabilities entailed by the increased depth and changed pattern of integration, particularly greater presence of foreigners in domestic financial markets and of the nationals of emerging economies in markets abroad.

Keywords:   external vulnerability, resilience, currency markets, asset markets, floating, currency risk, interest rates risk, reserve adequacy

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