The writer is a senior research fellow in the Global Economy and Finance Programme at Chatham House
With the Iran war over, it’s possible to imagine considerable amounts of additional capital moving towards emerging economies. A chunk of this will arrive in the form of “hot money”: speculative, easily reversible flows into short-dated notes traded in developing countries’ capital markets.
While there’s certainly a role for speculative capital flows in the international financial system, their excesses are well known: the two decades of repeated financial crises that emerging economies suffered in the 1980s and 1990s, and the more recent “taper tantrum” of 2013, testify to the havoc that the resulting volatility can unleash.
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