Oct 7, 2013
Shutdowns come and shutdowns go. The rest of the world watches Washington’s political antics and scratches its collective head. This Wonkcast was recorded before the current shutdown, when capital was rushing out of emerging markets and back to the US in anticipation of rising interest rates. While the slide in emerging market currencies has paused as investors reassess risks in the US, the underlying dynamic we discuss is still very much at play.
Emerging market currencies have seen a lot of action over the last few months. India’s rupee has fallen 20% against the dollar, the Indonesian rupiah and the Brazilian real are floundering after falling 15%, and Turkey’s lire has slipped 10%. I invited CGD senior fellows Liliana Rojas-Suarez and Arvind Subramanian to explain what’s driving the fluctuations. Since these economies have mosty been performing pretty well—consistently growing faster than the rich countries—to the untrained eye, the currency slides seem dramatic and unexpected.