Emerging Currencies at Risk

Most of the world's emerging economies link their currencies to either the Dollar, the Euro or a basket of currencies, through an outright peg or a so-called "dirty float." These countries have attracted waves of foreign money, with the intent of buying cheap exports, foreign direct investment, and capital/forex market speculation. As a result, while the upside of these pegs has been seemingly boundless economic growth, the downside has been inflation, since many of these countries have been forced to print money in exchange for foreign currency. Countries in the Middle East, Asia, and Eastern Europe, especially, have effected tremendous increases in their respective money supplies with double-digit inflation rates to match. Many savvy investors, namely hedge funds, have begun to target countries with fixed exchange rates that are suffering high rates of inflation, with the reasoning that it is inevitable such currencies will soon be forced into appreciation. The Telegraph reports:

Further east, Vietnam is throwing in the towel as inflation hits 9pc. It said it will no longer hold down the dong by massive purchases of US bonds. Singapore, Taiwan, and Korea have begun to change tack, slowing dollar accumulation before inflation gets out of control.