Therefore, we must find better ways to reduce financial market volatility. Policy measures to address the problem need to be tailor-made. In emerging markets, where financial sectors are underdeveloped, policy measures need to foster financial development.
Domestic savings could then be more easily channelled into domestic investment, promoting domestic income growth and consumption, and rebalancing economic growth away from exports and reducing the incentive to maintain a low currency value. It would also lower the need for reserves and official outflows to advanced countries, and the excessive demand for US dollar-denominated financial assets.