The have and have nots in global finance - G7 versus the rest of the world –

The emerging market currencies have gotten especially hard hit during this credit crisis even though in many cases their growth rates have far exceeded the numbers that have been seen in the G7. The flight out of emerging markets is real but also more complex. The emerging market currency sell-off also has to do with their ability to receive dollar swap credit lines. The emerging markets have been limited in their credit lines relative to the G7 which have a lender of last resort relationship with the Fed and ECB. The currency swap lines were put in place by the Fed to slow any meltdown in the currencies markets because of the impact delevering on foreign loan funding. With mammoth funding in the dollar, the seizing of money market rates will have currency effects as currency hedges are lifted against assets and liability sales.

G7 currency will get fund from the Fed but what about countries rest of the world which in many cases are closely tied to the dollar. They will have to fend for themselves and use their reserves to smooth nay currency issues from dollar delevering. The credit problem becomes a greater emerging market problem because of the lack of liquidity available. There is nothing coming from the IMF who seems to only want to intervene in the markets when the problem becomes a country specific crisis.

If governments are interested in a holistic solution, then more has to be done for emerging markets which have been the drivers of global growth over the last few years.