Wanton spread of global capital is an increasing number of countries, particularly emerging market countries constitute a serious impact on re-emerging market countries have resorted to the capital control measures. These control measures have changed the term structure of capital inflows and capital formation, but failed to stop the sharp appreciation of the currency into the country. G20 emerging market countries should be actively promoted within the framework of global capital regulation.

Capital controls in emerging markets have strengthened

Currently, the wanton spread of global capital is an increasing number of countries, particularly emerging market countries, pose a serious shock, gave birth to the asset price bubble, inflation pressures, foreign exchange reserves surged, and the sharp appreciation of currencies such as the passive series of negative consequences.

Statistics show that in 2010 the net inflow of new capital the world mainly in emerging market countries, most concentrated in Asia, Central and Eastern Europe, Latin America, Africa and the Middle East five regions, and Asia and is one of the hardest hit. April to October of this year alone, the inflow of 116 billion U.S. dollars in emerging markets in new private capital, about 92 billion U.S. dollars on short-term form of investment into stocks and bonds. In other words, nearly 80% in line with people generally understood the “hot money” concept.

90′s of last century, Asia, Latin America, Eastern Europe, many emerging market countries have had for the first inflow of foreign capital, and then out of (the so-called “shearing”) giving rise to the painful experience of currency crisis. In view of this, in the face of the current round of surging hot money inflows, the emerging market countries have demonstrated a strong and positive response to prevent mental attitude, have again resorted to the capital control measures.

Research shows that capital controls in emerging market countries, there are four major purposes: (1) lower capital inflows, or to change capital structure to encourage long-term investment; (2) reduce the degree of nominal and real exchange rate fluctuations and inhibit the promotion of local currency capital inflows appreciation; (3) to maintain monetary sovereignty in order to ensure the implementation of a more independent monetary policy; (4) to prevent any financial crisis or the occurrence of financial instability.

Capital control is effective but not effective

Strengthen capital controls in emerging economies, the actual results so far? 90 years from the last century to 2010, emerging market countries have experienced three serious impact of hot money inflows. 90 to the 20th century and 2006, the impact of the experience of the two, we find that emerging market countries, the effect of capital controls on inflows imagination is so far from ideal.

First, be sure, these measures failed to prevent sharp appreciation of the currency into the country. Imposed on capital inflows despite the variety of strict control measures, but in the 20th century, most of 90 years, the Chilean peso’s real effective appreciation of the exchange rate remains 4% per annum, while the Brazilian real’s appreciation of real effective exchange rate and achieved average annual 5%.

Second, in the “whether to reduce the amount of net capital inflows,” the key issue, the number of overseas research shows positive conclusion, while others are completely negative attitude research.

Nevertheless, these control measures have changed the term structure of capital inflows and capital formation. For example, the 1991-1998 capital controls during the inflow of short-term debt in Chile the proportion of total debt continued to decline, while the proportion of the stock of FDI from 34% to 53%. Similarly, in Colombia of all private foreign debt, medium and long term debt stock grew from 40% in 1993 to 70% in 1996. In other words, despite the inflow of capital also, but with the effect of various control measures, short-term hot money for the purpose of fame and fortune eventually became a relatively stable long-term capital. This sense, capital controls on hot money continues to be an important target, reducing the possibility of financial crisis.