Cheap money does not mean more capital flows

Cross-border capital flows do not just get driven by interest rates; plumbing and savings patterns may matter more

Portfolio equity inflows into emerging markets (EMs) picked up strongly in November as the US election uncertainty lifted, and several vaccine candidates reported positive phase 3 trial data. This triggered predictable comments about the profligacy of developed market central banks and the inevitability of sustained strong capital flows to emerging markets. But it is worth reminding ourselves that despite near-zero interest rates in the developed world, global capital flows kept slowing in the last decade, falling to just 4 per cent of global GDP in 2019, back to 1990 levels, having peaked at 18 per cent in 2007.

The presumption that