So far, the first wave of currency fall is over for EMEs. The currency fall for the emerging world appears to be severe. Many dooms day pundits are expressing that the emerging market growth story is over.

The emerging world was largely unprepared to meet the current wave of currency crisis. Many of their precautionary measures like the BRICS $100 bn never worked to reduce the impact. Similarly, their much famous foreign exchange reserves also became inadequate.

In the last decade, most of the emerging countries were complaining about the evil effects of capital inflows which were producing appreciation and painful export loss. Brazil’s Prime Minister even accused currency war which is some sort of committed depreciation to achieve export gain. They have forgotten the miserable past of 1997, when currency crisis rattled the East Asian countries.

Bernanke’s QE wind up plan has driven dollar liquidity away from the emerging world back to the US. Now, the emerging world can think about a period of currency falls rather than appreciations. During the last one week, currencies of nearly twenty leading countries have lost their value by more than 15 per cent. Worst affected is the flag bearer of the emerging economies- India. The rupee is closing towards the unbelievably low level of 70 for one dollar. The central bank and the government are helplessly watching the rupee succumbing to capital flight.

A quick overview of the tapering induced capital flight reveals that the worst affected among the emerging world are those with strong trade deficits. India, being the third largest trade deficit country is the worst affected among the group. India’s peers- South Africa, Brazil, Indonesia, Malaysia, Turkey are all shivering under the impact of the present turmoil. A surprising outcome is that the Australian Dollar has depreciated significantly over the last couple of weeks. The Australian Dollar was noted for remaining like a rock in 1997, when the currencies of all South East Asian countries came down.

On the other hand, some countries who have strong trade fundamentals, have survived. For example the Chinese Renminbi is least influenced by the events. China is the second largest trade surplus country in the world. What matters really is strong fundamentals- the Chinese indeed have given one more message to the world.