It seems like some investors in the US are dabbling in Zambian t-bills. Or at least were until a few days ago.
The flow of private money from the US to many emerging economies is one reason why I have some trouble with (quite popular) theories that argue that emerging economies cannot create financial assets that their own citizens want to hold, and therefore, must finance the US. These theories seem premised on the belief that US is good at creating financial assets that investors in fast growing parts of the world want to hold, while fast growing emerging economies cannot create financial assets that their own citizens, let alone foreign investors, want to hold.
To quote Daniel Gross:
Yes, people in China—and in India, or Brazil, or the Persian Gulf—are saving tons of money, in large part because they're selling goods and services to wealthy Americans and Europeans. But they don't trust their own poorly developed capital markets, banks, or corporations to take good care of their yuan, reais, and rials … But the U.S. stock and corporate-bond markets offer investors around the world the ability to gain exposure to the global economy.
What's wrong with that picture?
Well, right now, China's banks aren't having any trouble creating renminbi denominated financial assets that Chinese citizens want to hold. China is tightening controls on inflows — not on outflows. Its government is practically begging Chinese citizens to invest more abroad. Among other things, China has been holding its domestic rates below US rates to try to discourage inflows, and maybe even encourage outflows …
China is an extreme case, but more generally, private capital is flowing into emerging economies, not out of emerging economies. Private capital outflows from Russia have dried up, while private inflows into Russia have picked up. Some foreign investors kind of like Gazprom's profit margins, if not its management structure. That is one reason why Russian reserve growth has been so strong. And the same holds for most of the emerging world. Last year, Turkish citizens' desire to move funds abroad paled relative to foreign investors desire to move funds into Turkey. That's why Turkey's reserves went up in the face of a large current account deficit. And so on.
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