Since then, most emerging market currencies have rebounded sharply.

Moreover, some emerging market currencies are joining the club of international currencies for the first time.

First, most emerging markets feel their currencies pressed to appreciate by growing capital inflows.

Emerging markets currencies also collapsed, even in economies with huge foreign exchange reserves and relatively little debt.

The higher interest rates rise to stabilize emerging markets currencies, the more severe their crises will be.

Since then, emerging market currencies and fixed income securities (government and corporate bonds) have taken a hit.

The higher interest rates rise to stabilize emerging markets currencies, the more severe their crises will be. Ultimately, even if emerging economies manage to diversify their funding away from foreign currencies, they will remain hostages to US monetary policy cycles.

But, while that implies that emerging market currencies must strengthen, disorderly appreciations would do more harm than good.

South Korea, Brazil, and other emerging market countries are also attractive diversification investments, causing their currencies to appreciate.

The mechanics are familiar dollar liquidity flees to emerging countries in search of higher yields, putting upward pressure on their currencies.

Thus, for the dollar to depreciate further, it will have to depreciate against the currencies of China and other emerging markets.

SANTIAGO With the currencies of Malaysia, Indonesia, South Africa, Turkey, Brazil, Colombia, Chile, and Mexico hitting record lows recently, currency traders around the world are asking How much further can emerging market currencies weaken?

It is small wonder, then, that investors desperately searching for yield have rushed into equities, commodities, credit instruments, and emerging market currencies.

The performance of emerging market currencies and other assets so far in the second quarter suggests that deleveraging has begun once again.

As emerging market central banks leaned against heavy capital inflows in order to mitigate exchange rate appreciation, their currencies became less volatile.

Ultimately, even if emerging economies manage to diversify their funding away from foreign currencies, they will remain hostages to US monetary policy cycles.

This reading overlooks the fact that currencies throughout the emerging world ought to appreciate vis à vis those of the advanced economies, simply because the emerging countries do not face the same economic challenges.

These include emerging markets long term growth differentials relative to advanced economies investors greater willingness to diversify beyond their home markets and the expectation of long term nominal and real appreciation of emerging market currencies.

By contrast, emerging economies suffer from a downturn, but their situation is fundamentally sounder, which should be reflected in the value of their currencies.

If China doesn t allow the renminbi to strengthen, other emerging markets will remain wary of letting their currencies appreciate too much and lose competitiveness.

Developed countries currencies have been floating against each other for several decades, but this has been only partly true of emerging and developing countries.

Furthermore, developing countries could not borrow in their own currencies because world currencies were the currencies of industrial countries.

Moreover, some emerging market currencies are joining the club of international currencies for the first time. Indeed, some analysts have suggested that the Chinese renminbi may rival the dollar as the leading international currency by the end of the decade.

Foreign investors are already reshuffling their portfolios, moving into euros, pounds, and even emerging market currencies like the Brazilian real and the South African rand.

The normal response of emerging market central banks to bubbles or inflation would be to raise interest rates thereby increasing their currencies value still more.

Collapsing emerging market currencies, and the resulting trade pressures, will make it all the more difficult for them to prevent their unemployment levels from rising significantly.

Exchange of currencies

Non convertible currencies

The overall trade weighted value of the renminbi has thus declined significantly, particularly relative to the currencies of the emerging market countries with which Chinese producers compete.

(h) Translation of currencies

(f) Translation of currencies.

Ideally, Asian currencies would rise much more than 15 while European currencies would rise less.

You have a similar trend with currencies currencies going through an extreme time of stability.

Had emerging economies resisted the temptation of excessive private sector credit growth, raising interest rates in order to stabilize currencies would not pose a severe threat to economic performance.

Some countries devalued their currencies.

Wanted Chinese Leadership on Currencies

Decrease in non convertible currencies

Change in non convertible currencies

Note 2. Non convertible currencies

Strong currencies make strong countries, a senior United States policymaker used to say. Many emerging country exporters, struggling to retain customers in the wobbly US and European markets, feel otherwise.

Other emerging markets growth prospects are even worse not least because of low commodity prices. As a result, these countries can expect lower capital inflows, again making for weak local currencies.

A World of Multiple Reserve Currencies

That is also true of currencies.

(d) Translation and conversion of currencies

those currencies for operational purposes 18.6