Unit 4 Macro: Currency Instability in the Fragile Five

This is a superb article from the Economist for A2 macro students wanting to understand more about the fragility of a large cluster of emerging economies.

Many have been running large current account deficits on their balance of payments and this makes them vulnerable to sudden and significant capital outflows from their economy, which in turn causes exchange rate weakness.

Dropping currencies threatens a sharp rise in cost-push inflation and slower economic growth (stagflation) - so several central banks including Turkey and South Africa have taken the step of raising policy interest rates to partly stabilise their exchange rates.

Will it be enough? Here - Kenneth Rogoff discusses some of the problems facing emerging economies

See also - stormy times for emerging markets (BBC)

Focus on Turkey

Turkey was once hailed exemplar of the world's high-growth economies. Now, the country faces tough economic adjustments and a political system gripped by allegations of corruption and disregard for the rule of law - Financial Times video