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Lopsided currency swings: Implications for emerging economies in post crisis world

Here is the abstract of my paper accepted at the ADMIFMS Management Research Conference 2012 to be held at Mumbai University in December 2012

Lopsided currency swings: Implications for emerging economies in post crisis world 

World currency markets have become extremely lopsided in the last few years. The global economic crisis along with the follow up recession era measures initiated by the governments and central banks around the world have made the venerable logical flow of knowledge in economics and financial markets near obsolete.

The ever-growing interconnectedness in world economy means that such volatile and asymmetrical forces play a highly influential role for businesses; consumers and governments as the economic recovery post the meltdown in 2007-2008 shapes up. Risk assessment has acquired a new dimension in the last five years and it is difficult to explain the towering gains witnessed by the US dollar and the Japanese yen in times of extreme stress.

The currencies in advances nations, which called shots on the global stage as far as international trade and investment flows are concerned, might crumble under the weight of excessive debts their central banks have piled up in a quest to support fragile economies. The emerging economies would find themselves in a fix in such a situation, as their economies would be exposed to forces well outside their sphere of influences. These adverse currency movements are likely to affect the industrial as well as social environment in these nations.

The paper argues that global economy needs vibrant growth in emerging markets for persistent evolution of the process of globalization and a reduction of economic inequality. A reasonable response from global policymakers would be cautious optimism notwithstanding the array of competing theoretical arguments. Further, it is observed that the reactionary forces in global asset markets have been much more pronounced and far reaching in last few years and currencies are becoming the single most critical factor to maintain a strong and robust financial system.