Two weeks ago Brazil moved to deter speculators from pushing up its currency, doubling the tax on foreign investment in its government bonds. Last week Thailand acted on similar lines by no longer exempting foreign investors from paying a tax on its bonds, with the Thai finance minister warning of more to come. As the dollar falls and developing nations see speculators push up their exchange rates, other countries are also discussing more stringent restrictions. A damaging age of capital controls seems likely.

Indeed, moves by speculators purchasing assets and taking currency positions in China, Brazil and much of Asia now threaten to make this new era a self-fulfilling prophecy. Such speculative inflows contribute little to capital formation or employment. But they do price exporters out of foreign markets, and can be suddenly reversed if speculators pull out, disrupting trade patterns.

With the likelihood of further falls in the dollar, central banks in developing countries face a capital loss if they try to stabilise exchange rates by buying dollar-denominated assets – as the Bank of Japan did when it recently bought $60bn of dollar securities to hold down the yen’s rise. These modest acts set rates through the open market, but their cost is now threatening to drive these economies towards more formal capital controls.