Changing tides in global economy

Economics and politics cannot be severed - demands for greater voting rights by emerging economies at the annual meeting of the International Monetary Fund (IMF) last Saturday, seem to consolidate this statement.
Asian and Latin American economies, such as Brazil, India, and China, have gained an economic stronghold globally as theyve managed to weather the financial crisis of 2008 with better efficacy than the rich world.
But the growing prominence of the emerging world has also amassed risks of a possible bubble brewing up in their economies, which has raised points of genuine concern.
The developed economies are over-indulging in quantitative easing, and the consequent increase in money supply is finding its way to emerging economies where yields are better.
Brazilian bonds, Indian equities and Chinese real estate are the new safe havens for investors. And herd mentality is driving many towards these markets.
The MSCI Emerging Markets Index, an index designed to measure equity market performance in global emerging markets, closed at about 1108 on Monday. It stood at 894 the same day last year, and has been on a rising trend overall.
The International Institute of Finance (IIF) lifted its forecasts of capital inflow into the emerging economies to $825 billion last week, up from an April prediction of $709 billion.
So, there has been an upward pressure on currencies of the emerging world with respect to the depreciating dollar and the result is a currency war that is being intensely talked about in the financial hubs of various countries, as well as the IMF.
As apprehensive countries facing a raised exchange rate are intervening to keep their currencies mellow to avoid hurting their exports. Their developed counterparts, mainly the EU and US, are calling for curbing currency interventions so as to keep their current account balances steady.
Yet, one shouldn discount the fact that talks of pushing other countries to let their currencies rise is driving up speculative behaviour and contributing to blowing up the emerging market bubble.
For instance, expectation of a rising Yuan, thanks to intense international pressure, has driven heavy capital inflows into the Chinese property market. Chinas stance on letting the Yuan rise gradually is only fuelling speculation about the currency rising and investors herding into its real estate for exchange rate gains in future.
At the same time, letting the Yuan rise steeply will be severely detrimental to the Chinese economy.
So what should really be done? More cooperation, one dare say.
Monetary easing by the US is also to blame for weakening the US dollar and thus stoking a currency imbalance. The spillover effect of the excess liquidity on the emerging markets, and the risks of a bubble therein also prevail.
The logical stream of thought thus suggests that emerging markets, more influential, independent, and accounting for more than 30 percent of the global GDP, should have a greater say in the IMF.
And the string-pulling, richer countries, whose economic decisions do impact the emerging world too now, need to be put under greater scrutiny by the Fund.
The seeds for a revision in the balance of power and politics have been sown by economic imbalances. The coming months, or perhaps years, will decide how far they will bear fruit.