The Bank for International Settlements has published a research volume prepared for the March 2026 meeting of emerging market economy Deputy Governors, examining how changes in capital flows, exchange rates and global financial conditions are affecting EMEs. The papers show that since the Great Financial Crisis, EMEs have seen a shift from bank lending towards bond and equity financing, greater use of local currency financing, larger resident outflows, a bigger role for non-bank financial institutions in portfolio flows and stronger intraregional financial integration. While these changes appear to have improved resilience in recent years, the volume finds that global factors, especially movements in the US dollar, still play a major role in domestic financial conditions. The BIS background paper and country contributions also highlight how these structural changes are reshaping policy choices. Financial conditions across EMEs remain highly synchronised, but the sensitivity of portfolio flows and local currency bond yields to dollar strength has generally declined in recent years, particularly in 2025. Central banks reported using combinations of policy rates, foreign exchange intervention and macroprudential tools to manage shocks, with 17 of 23 survey respondents using financial conditions indices. The volume also points to the rising importance of domestic and foreign NBFIs, the need for deeper FX spot and derivatives markets, and the potential for cryptoassets and stablecoins to affect exchange rate volatility, capital flow management and monetary policy effectiveness in some EMEs.
Bank for International Settlements2026-05-26
Bank for International Settlements publishes research on post-crisis shifts in EME capital flows local currency financing and NBFI influence
The Bank for International Settlements published a research volume for emerging market economy Deputy Governors on how post-crisis shifts in capital flows, exchange rates and global financial conditions are reshaping EME financial structures and policy choices. The papers find a move from bank lending to bond and equity financing, greater local currency use, larger resident outflows, a bigger role for non-bank financial institutions and stronger intraregional integration, which have supported resilience but left domestic conditions heavily influenced by global factors, especially the US dollar. The volume highlights evolving use of policy rates, foreign exchange intervention, macroprudential tools and financial conditions indices, and flags the growing importance of NBFIs, deeper foreign exchange markets and the potential impact of cryptoassets and stablecoins on capital flows and monetary policy.