This is Africa quoted senior fellow Liliana Rojas-Suarez on the effects of QE2.
From the article:
The effects of quantitative easing in the United States could exacerbate existing structural issues in African economies, analysts have warned. However, if properly managed, capital inflows resulting from sustained weakness in the US dollar could provide a source of financing for development.
The US Federal Reserve has injected $600bn into the domestic economy in a further attempt to revive growth. Instability in the Eurozone and a probable bailout of the Irish economy and continuing disputes between China and the US over the revaluation of the renminbi have led to a period of uncertainty over global currencies, but it seems likely that the dollar will remain weak.
Accepted wisdom dictates that expansionary monetary policy in the US should lead to falling interest rates, relative to emerging markets, and to capital flowing into those economies. These inflows would lead to appreciation of currencies in recipient markets, reducing their global competitiveness. Should those inflows be used for consumption – bank lending for property and goods – potentially hazardous bubbles could emerge.
The short term nature of these inflows creates issues, says Liliana Rojas-Suarez, senior fellow at the Centre for Global Development in Washington DC. “Some people call it the problem of the riches, but it’s not true. You have more capital, but it is basically capital that is in search of high return. If the industrial countries, at any point in time, especially the United States, increase interest rates, it’s going to flow back. Capital flows are going to reverse. This has happened many times in developing countries and so they are very concerned.”