The global implications of lower emerging market currencies are also likely to be deflationary.

First, most emerging markets feel their currencies pressed to appreciate by growing capital inflows.

Save the Emerging Markets

Over the long run, globalization and economic convergence will resume, and emerging market and commodity currencies will have to strengthen. At the same time, the prospect of higher US inflation and massively higher US public debt levels must eventually weigh on the dollar, as does the still worrisome US trade deficit.

Over the long run, globalization and economic convergence will resume, and emerging market and commodity currencies will have to strengthen.

Emerging Markets Euro Nemesis

Emerging Markets Feminine Future

This is especially true for developing countries and emerging markets.

The emerging market economies are at risk as a result.

Collapsing emerging market currencies, and the resulting trade pressures, will make it all the more difficult for them to prevent their unemployment levels from rising significantly.

Among emerging markets, only Eastern Europe was badly hit.

The international community has a profound stake in the future performance of emerging markets.

Against this bleak background, it is easy to celebrate the success of emerging markets.

Why Switzerland and not Brazil, one of the largest emerging markets?

The emerging market crisis of 1997 1998 changed all this.

The answer to the emerging markets question would have been straightforward a few years ago.

Most important, the New Development Bank will give greater voice to the perspectives and interests of those in developing countries and emerging markets.

Unfortunately, for emerging markets, adjustment is often impossible without help from the outside.

When Russia announced its suspension of payments on debt servicing, banks drew in their credits from other emerging markets around the world, especially countries with overvalued currencies and large bank debts.

So is 2012 the year for another emerging markets crisis?

The priority for now is to save the emerging markets from the consequences of Wall Street s financial follies.

We have already seen where poor regulation of rapidly evolving financial markets can lead.

Moreover many of these emerging markets face political and electoral risks.

The first is that capital market liberalization opening up developing countries financial markets to surges in short term hot money is dangerous.

The upshot is that the emerging market policy environment is a lot more competitive, especially in terms of attracting FDI.

Perhaps the effectiveness of legal institutions in developing countries and emerging markets is not the only goal.

Moreover, the value of the dollar has been soaring against the yen, euro, and most emerging market currencies.

For emerging markets, the first seven year phase of plentiful capital flows occurred in 1975 1981, with the recycling of petrodollars in the form of loans to developing countries.

Exempting emerging markets from any commitments, as the Kyoto Protocol sought to do, no longer makes sense.

Rather than slavishly believing policymakers assurances, emerging market researchers have learned to be cynical about official promises.

In fact, the shift in the business landscape thus far has lagged behind the shift in the weight of global GDP toward emerging markets.

Emerging market large companies growing global clout is reflected in flows of foreign direct investment.

They and other emerging market countries are victims of a rational flight to safety, exacerbated by an irrational panic.

The Chinese economy s dynamism is highly dependent on exports, which would suffer greatly from a collapse of emerging markets.

The indirect effect, which might be substantial, is that cost competitive light manufacturing in emerging markets increases.

If emerging market problems are not a good reason for target zones, what about the risks of global instability provoked by vast international currency swings?

A currency converter and calculator

Within Eastern Europe, capital has sought out the countries with the most rapid growth, following the overwhelming pattern in emerging markets.

Hence demand for commodities, which has been driven by emerging market growth, has fallen sharply, and help decrease global inflation.

However, even continued strong performance by Asia s emerging markets is unlikely to be enough to secure a strong global recovery.

Moreover, it is based on the experiences of diverse emerging market countries whose relevance for postcommunist economies is questionable.

Emerging market currencies were hammered, as were commodity currencies such as the Canadian, Australian, and New Zealand dollars, and the South African rand.

Seventh, the reasons for advanced economies high unemployment and anemic growth are structural, including the rise of competitive emerging markets. The appropriate response to such massive changes is not protectionism.

Emerging markets external and fiscal positions have been stronger than ever, thanks to the hard lessons learned from their own crisis prone history.

For emerging markets, the best way forward is to correct the incentives for interest rate arbitrage at the source of capital flows.