After years of relative calm, in recent months several emerging economies have found the cost of attracting foreign funding is going up. Faced with a halt of external financing, Argentina obtained a three-year financing deal worth $50 billion from the IMF, while funds also appear to be flowing out of Brazil, Turkey, and elsewhere. And, recent bond market turbulence in Italy suggests the possibility that political risks are triggering outflows there.
In this post, we explain balance-of-payments (BoP) crises—the sudden stops or capital flow reversals—that compel countries to restore their external balance between exports and imports or, in the case of capital flight, shift to export surpluses. In addition to describing common features of BoP crises, and characterizing sources of vulnerability that make them more likely, we examine one emerging-market example—the Asian crisis of 1997-98—and one advanced-economy episode—the crisis of the euro-area periphery from 2010 to 2012….
The danger is that investors will interpret the surging price itself (and the associated hullabaloo) as a sufficient signal to buy, fueling an asset price bubble (and, eventually, a painful crash).
No one can ever say with certainty when an asset price boom is a bubble. Nevertheless, it makes sense to ask what fundamental services Bitcoin provides. More specifically, have the prospects for those services improved sufficiently over the past year to warrant the 10-fold increase in price that has vaulted Bitcoin’s market capitalization into the range of the top 50 U.S. firms?
We are now in the ninth year of Bitcoin, the first coins (or “Genesis Block”) having been mined (that is, awarded for solving a computational problem) on January 3, 2009. Yet, Bitcoin has clearly failed to meet the grandiose aims of its advocates. Unlike conventional money, it is not widely used as a means of exchange. And, despite claims that its independence of government would make it a stable store of value, it remains anything but.
Instead, the evidence we can find hints that its primary use is to evade capital controls (or, possibly, as an alternative store of value in a repressed financial system). The greatest achievement associated with Bitcoin is not the currency itself, but the blockchain—the distributed ledger technology underlying it—that is now being widely explored in the hopes of slashing costs and improving services in finance and a range of other activities (see our earlier post).
