Capital controls unlikely to deter inflows to emerging world

Last month’s decision by the Brazilian government to impose a tax on foreign purchases of bonds and equities has stoked speculation that a number of other emerging markets could soon follow suit. Policymakers in Colombia are becoming increasingly concerned about the strength of the peso, although they seem to favour intervening in the foreign-exchange markets to stem its rise. (See Chart 1.) For now, at least, FX intervention remains the favoured strategy in Asia too, although the authorities are also tackling the threat of asset bubbles through targeted credit restrictions.