capital controls

More diversification, more lending, decent growth, but no capital taxes. That’s the message from Alexei Ulyukayev, first deputy chairman of Russia’s central bank. (Confusingly, there seem to be three first deputies.)

Mr Ulyukayev has been busy talking to reporters today. He has announced: 

Sri Lanka has shelved plans to allow the free flow of foreign currency into and out of the country following political upset over the plan. Sri Lankan central bank governor Ajith Nivard Cabraal said over the weekend that the plans were now on hold until after the Presidential election, scheduled for January 26, 2010.

The central bank, which yesterday kept its rates on hold, said on January 4 that it would allow the free flow of foreign exchange, so anyone could send money in or out, or set up foreign bank accounts. 

All eyes on Abu Dhabi: the focus has shifted from the health of companies to the relationships between emirates. On this, the consensus is that Dubai’s oil-rich, older, wiser brother may “ride, but not race” to the rescue. The UAE central bank has offered to make funds available, improving liquidity. But investors want more, ideally a debt guarantee: “This isn’t just a liquidity crisis, it’s a solvency crisis.”

It’s also a confidence crisis. 

Capital control, anyone? Emerging markets are taking action to curb currency appreciation. Brazil – whose economy is recovering well – introduced a 2% tax on foreign capital inflows last month, and has just announced a further measure, effective today: there will be a tax on American depositary receipts, which allow foreigners to invest easily in Brazilian stocks. Meanwhile Indonesia has announced possible capital controls, sending its currency sharply lower.

The flight to gold continues, 

This might seem like a currency special edition. The dollar fell after China hinted at renminbi appreciation. The People’s Bank of China said foreign exchange policy would take into account “capital flows and major currency movements”, a pointed reference to US dollar weakness and the large speculative inflows of capital that China is receiving. Those speculative inflows are a growing concern for many emerging markets, whose currencies are rising quickly: Taiwan, Russia, Brazil, Thailand and Chile are all planning how best to slow the influx of capital.

Dollar reserves have been going out of fashion over the past few months, and now two IMF economists have called for diversification away from the greenback. This will make Geithner’s (widely mocked) ‘commitment’ to a strong dollar even harder to achieve. 

More than half of all children in the US will use food stamps at some point, predicts new research. Equities fall sharply in the UK and Europe, in spite of strong manufacturing data, amid fresh concerns about mortgage-backed securities and the possibility of a second round of stimulus in the US