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Business EconomyPosted at: Jan 5 2023 10:00PM


Reversal of capital flows not strongly correlated with domestic fundamentals: PM-EAC member

Hyderabad, Jan 5 (UNI) ”The emerging markets now maintain a stronger economic framework but these are insufficient for insulation from reversal of capital flows” said Dr Poonam Gupta , a member of the Economic Advisory Council to the Prime Minister and Director General of National Council of Applied Economic Research (NCAER), here on Thursday.
Poonam Gupta while delivering a talk on the topic – “Building better Global Financial safety nets for emerging markets and for India” at the ongoing 3-day conference being organised by the Indian econometric society (TIE) in association with : The School of Economics, University of Hyderabad (UoH) here, said the issue is more serious as the reversal of capital flows are not strongly correlated with the domestic fundamentals, which mandates strengthened global financial net.
Focusing on the reversal of the capital flows and how they induce the financial volatilities in the financial markets of the emerging economies which can be effectively addressed by the strengthened global financial safety net, he said India is going to chair G20 this year which has Global financial safety net as one of its agendas.
The most recent episodes of such reversal of capital flows include 2013,2016,2018,2020 and 2022 across the world, he said the episodes of increased volatilities pose major serious challenges for the central banks, policy makers, business and consumers of the economy.
The entire toolkit including exchange rate, reserves, monetary policy, fiscal prudence and communication of policy reform seems to be inadequate during times of capital flow reversal, which hence demands a more prudent and stronger Global Financial Net, the economist pointed out..
The four components of such global financial safety nets are -- bilateral swap lines, regional financing agreements, IMF contingent lines and foreign exchange reserves. “There is a South-South component”. The swap lines are not very homogenous these days, they are in fact credible and impactful for the market, said Dr Gupta..
Gupta also opined that there is a need of rethinking the safety nets during the G-20 Presidency. The US Fed swap lines are offered selectively. Yet they are the ones that are deemed to be the most credible and impactful. Wider access to the swap lines by the US.
The policy of building the forex reserves should not be branded as the currency manipulators in “normal” times. The director concluded the session with a thoughtful idea, which appealed for a fairer and credible International Financial system, he added.. UNI KNR SSP
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