Foreign Exchange Volatility a Concern but "Old-Fashioned Currency Control" Not the Answer - A Sign of Upcoming Currency Wars?
The global economic and financial crisis has struck emerging market currencies, yet Dr. Alexander Mirtchev, founder and chairman of the Krull Corporation and a transitional economy expert, believes that central banks in the emerging markets should resist the temptation to restrict currency flows. Despite the volatility in the foreign exchange markets and the negative impact on emerging market currencies, Mirtchev believes that FX restrictions would hinder the prospects of a sustainable recovery.
"Maintaining liquidity is an obvious factor in alleviating some of the pressure on the markets," Mirtchev said, "and any 'quick-fix' moves by central banks in rapidly developing economies to restrict currency flows could turn out to be a faux pas. In the short-term, we are seeing losses, but as the markets stabilize, equity and capital investments remain the fastest way to stimulate growth."
Alexander Mirtchev, who is also a member of the board of directors of the Kazakhstan Sovereign Wealth Fund "SamrukKazyna," warns against ad-hoc measures to stabilize the emerging markets' financial systems. "Some significant emerging markets would likely opt for internal instruments for managing the financial sectors' troubles. These instruments could take the form of various internal clearing, settlement and fund-flow management mechanisms, etc., or other, more 'exotic' measures that could even take on a regional dimension -- that would inevitably affect the investment inflows and outflows, and would require careful consideration by foreign investors." Mirtchev added, "It is to be expected that investors in the emerging markets would have to face variable internal systems in the foreseeable future. Unbalanced intervention by the central banks may deter even the most committed foreign investors and delay the recovery."
"The liquidity problem is a global problem, and to resolve it would require the commitment of the international community, in particular those countries that are in a position to lead in supporting liquidity and solvency in the global system, and especially the emerging markets, under the present conditions," he said. "One-sided measures by the emerging market economies become more likely the less they are engaged in implementing the recovery process by the global financial community. It is more crucial than ever for emerging markets to be consulted with and involved in the recovery efforts undertaken by the largest economies."
Dr. Mirtchev has also commented more extensively on the widespread impact of the financial crisis in a discussion with Focus Washington's Chuck Conconi. The interview can be viewed at www.youtube.com/focuswashington.
About Krull Corporation
Krull Corporation is a Washington, D.C.-based advisory and project management firm with expertise in dealing with economic growth, industrial expansion and restructuring issues. Founded by Dr. Alexander Mirtchev in 1992, Krull Corporation capitalizes on his extensive professional experience in market developments and reforms and focuses primarily on emerging and rapidly developing economies. Over the years, the firm has provided its clients with outstanding strategic guidance and professional services in various areas. Combining a unique blend of global reach and understanding of local markets, Krull is able to consistently produce high quality results and returns.