Thoughts on EM currency intervention and its long-term effects
Been watching some of the EM central banks lately, especially with the recent swings. It feels like there's an increasing tendency to intervene heavily whenever their currencies start moving a bit too much against the dollar. While it might offer some short-term stability or manage inflation anxieties, I'm genuinely starting to question the long-term health of their markets when they're constantly leaning on the scales. Doesn't it just create a market that's perpetually waiting for the next intervention, rather than allowing for organic price discovery and healthy, albeit sometimes volatile, adjustments?
It makes me think about how much true resilience is being built versus a reliance on policy levers. It's not like these are developed markets with deep, liquid bond markets to absorb everything. Interested to hear if others see this as a necessary evil, or if it's potentially stifling genuine market evolution. Push back on this, I'm keen to hear different perspectives.
I'm with you on this. While short-term intervention can sometimes prevent full-blown crises, the constant propping up of currencies can distort true market pricing and potentially deter foreign investment if the interventions become too unpredictable or seem to mask underlying economic issues.