Fed Policy Has the Emerging World Lamenting the Dollar’s Dominance

Michael Schuman

The U.S. Federal Reserve is taking heat these days from policymakers in the developing world. They have good reason to be disgruntled. Ever since the Fed signaled last year that it would begin scaling back – or “tapering” – its unorthodox program to stimulate the U.S. economy, emerging markets have been in turmoil. Investors, fearful that a cutback in Fed largesse would crimp funds flowing to the emerging world, have yanked their money back, causing currencies to tumble from Turkey to South Africa to India. That has forced central bankers in the developing countries into unwelcome choices. Many have had to hike interest rates in an attempt to stabilize their currencies, a move that could slow growth. And they’re not too happy about it. The most outspoken has been India’s central bank governor, Raghuram Rajan, who has complained that global policy coordination has broken down, the Fed has acted on its own, and selfishly left the emerging world to its fate. “Industrial countries have to play a part in restoring that [co-operation], and they can’t at this point wash their hands off and say, we’ll do what we need to and you do the adjustment,” Rajan recently criticized. He continued his critique at this month’s G-20 meeting in Sydney. The message from the U.S. and other major economies “is that you [emerging markets] are all on your own, no one is going to come to your help,” he warned on CNBC. “If that’s the message that goes out, we’re setting in place the roots of the next crisis.” Such sentiments are not Rajan’s alone. “It is very important to continue to communicate to discuss about the roadmap so that we in the emerging markets can prepare,” commented Finance Minister Muhamad Chatib Basri of Indonesia, another country that has gotten hit by Fed tapering. Even the G-20 communique reflected these concerns. “All our central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated, in the context of ongoing exchange of information and being



via Business Feeds

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