Emerging market economies have also tried to stem the tide through aggressive accumulation of reserves and through imposing taxes on inflows. Brazil imposed an inflow tax of 2 per cent, which was recently increased to 4 per cent. The impact on the exchange rate appears to have been short-lived, while bond rates increased to compensate investors for the tax.
In contrast, because of our experience with providing other services, the Federal Reserve already has invested in connections and customer service relationships with nearly every bank, small and large, across the country. Currently, we provide payment services to nearly all banks either directly or indirectly.