Working Paper n°2017-18 – The Fragility of Emerging Currencies Since the 2000s – a Minskyan Analysis


Raquel A. Ramos, CEPN, UMR-CNRS 7234, Université Paris 13, Sorbonne Paris Cité –


The currencies of a few emerging market economies (EME) have being following a
specific dynamic since the early 2000s: they are strongly connected to financial markets internationally,
appreciating in moments of tranquility and presenting sharp depreciations in peaks of
uncertainty. What is the mechanism behind this specific dynamic that contradicts mainstream
exchange-rate theories? To answer this question, this article applies the Minskyan framework
to the context of money managers and their portfolio allocation decisions. The approach allows
the analysis of these currencies through money managers’ decisions, putting forward that these
might float according to their balance-sheet constraints – reasons not related to the currencies
themselves, but to money managers’ assets, liabilities, and currency mismatch. The result is a
dynamic characterized by deviation-amplifying system, the opposite of the equilibrium-seeking
mechanism needed for clearing markets, and high frequency of depreciations associated to the
global extent of these institutions’ balance-sheet.

Keywords: Exchange rates, emerging market economies, Minsky

JEL Codes: F41, F310, B50

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