Add to this some extrapolative expectations, some herding, and above all a risk premium which varies with the latest wave of euphoria or pessimism, and the potential both for volatility, and for significant and sustained misalignment - in both directions - is clear.
Some of these countries have also become reliant on foreign savings to fulfil all their spending plans, meaning that they are running current-account deficits. Together, these forces have produced a reversal in capital flows and currency depreciation. 2  2  United States. BIS central bankers’ speeches  These two factors underpin the steady depreciation of the rand over the past half-decade.