[ G7 Meeting Releted Topic ] Market discipline vs Regulation and controlling

Friday, February 09, 2007

[ G7 Meeting Releted Topic ] Market discipline vs Regulation and controlling

Politicians used to blame hedge funds activities, whenever there is with instability in currencies move or appearing of any sight of economy crisis. Looking backward from GBP crisis to Pan-Asian economy crisis, I do believe that economies crisis in the past are mostly the impact of hedge fund activities. At this point, I am mentioned 'In Past' only.

Hedge funds did success hurt several countries economy before and generated huge return for themselves. They did have stronger power to move a currency into the way where benefit them the most. Their ability to really control a currency’s move is now far more limited if compared with history. Forex market nowadays is too big for anyone to control.

I do remember that some countries did actually implemented Capital Control and Currency Control during the Pan-Asian economy crisis 10 years ago. During the beginning stage of such implementation, those countries economy didn’t get hurt as badly as those which decided to fully reform the countries economy fundamentals. Countries that with capital control/currency control did maintain GDP positive. But it is mainly supported by capital control policies which prevented challenges from outside world. Major support came in with government related projects as well. Economy fundamentals did improve, but overall are much slower then those without any protection of capital/ currency control. Why do I say so? I do always believe that an economy fundamental will never be strong if it didn’t being tested or if there is with gaps that protect it with outside world.

10 years had just passed and let do some basic study within GDP and also Foreign Direct Investment (FDI) to all the related countries. Some countries became more and more attractive then before for FDI. Some countries are lately able to keep their GDP in expansion much stronger than others. I discovered that those countries which are now far more 'open' that before have stronger performance in overall economy development. Those countries which did close it door for foreigner became less popular for FDI now. One Asia country recently decided to implement capital control was decided to remove it controlling policy in less than 1 week time. Once again this demonstrated a very basic theory – “Market discipline and freedom can not be eliminated or regulated “.

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I agree that an economy body might get hurt if it allows more freedom for outsiders. But everyone should agree that it is impossible for a country’s economy to be really expended if without foreign investors. Strict regulation or any capital controlling will just tightening foreigners investment activities and please remember the impact is long lasting, even after the country had totally removed all of it controlling rules. Investors can not be threatened and the right way is to encourage investments of any kind from outside world.

The best way to monitor hedge funds impact is to create a healthier market which ruled by different forces. Any controlling will just cause a market unable to growth and become too small to be healthier. Yet it can be easier leading by any forces inside the circle as in history.

Don't try to rule the currency to become the base for economy growth. Try to work hard to establish economy properly, and yet this will become the support for a currency to stay stable.

Personally I really believe that as long as Forex market keep emergent without any limitation of any regulation or controlling, yet it will be too big for hedge funds (or any other forces) to appear as the evil in destroying currency. Hedge funds (or any other forces) can only act as the 'tester' to define how strong a county’s economy fundamental is.