SINGAPORE — Governments from South Korea to Brazil are stepping up attempts to control their currencies as investors pour a record amount of money into emerging markets.
Regulators in Seoul will start an audit of lenders handling foreign-currency derivatives on Oct. 19 to curb volatility caused by capital flows, the finance ministry said Tuesday. Brazil doubled a tax it charges foreigners on investments in fixed-income securities to 4 percent Monday. The yen fell the most in three weeks after the Bank of Japan cut benchmark interest rates and pledged $60 billion to buy bonds and other assets, having sold $25 billion worth of its own currency last month in the first intervention since 2004.
Policymakers are trying to limit inflows after the Korean won climbed 8 percent in the past three months to the strongest since May and Brazil's real gained 4.7 percent to a two-year high. Investors have plowed a record $49.4 billion into emerging-market stock funds this year and $39.5 billion into bond funds, EPFR Global data show.
"The question remains: To what extent can countries with floating exchange rates and open capital accounts prevent real appreciation in a world of massive capital flows?" said Kevin Gallagher, a professor at Boston University who has written reports on the issue for the United Nations. "The evidence shows that it can be done, at least in the short term."
The Bank of Thailand is still studying measures to help manage the appreciation of the baht, director Wongwatoo Potirat told reporters in Bangkok on Tuesday. Policymakers in Indonesia, Malaysia and the Philippines also have in the past two months indicated they will intervene to curb volatility.
World Bank President Robert Zoellick said Monday he sees tensions arising from currency devaluations as nations seek to buoy their economies.
Brazilian Finance Minister Guido Mantega warned in late September of a "currency war," saying the government will buy "excess dollars" in the market to limit the real's appreciation. The government will double to 4 percent the tax it charges on foreigners to invest in the nation's bonds, first introduced in October 2009. Foreigners held a record $9.2 billion of local debt in August.
Brazil offers real interest rates of 8 to 9 percent, said Bill Gross, who manages the world's biggest bond fund at Pimco in Newport Beach, Calif. The won is representative of "strong emerging-market currencies to stand in contrast to the U.S. dollar," he said Tuesday.