Do you know what the term “tapering” means? You might have heard about this at least once in newspaper, or television news. It signifies the economic policy which curtails the supply of money (dollar) to the market. Since it had been launched by the FRB (federal reserve board), many economists have observed it closely. In fact, their main interest is not the only policy; but the huge effect it may cause.

Before the release of “tapering”, US had supported lots of dollar to its market in order to find a way out from stagnation. Which is called “quantitative easing(QE)”, had massively expanded the amount of currency and lowered the money rate. This brought a huge advantage to people who waited until the time when their investments make maximum utility comes, because they had only to pay smaller debt.

In addition, bond holders do not deposit their funds to the bank when QE continues as they get lower income. On the other hand, lowered debt strain made these people turn their eyes on the new market in the rising nations.

Usually investors hesitate where to put their money in, and here occurs the problem; a new market with a high risk but a big chunk of money, or bank which guarantee certain but smaller income. If they decide to invest their funds in the new markets, they should exchange their dollars to foreign currency. Rising nations earn lots of dollars with this, lowering the scarcity of dollar and exchange rate.

However, since investors always aim for the best benefit, this situation differs whether QE or tapering is executed. When it comes to tapering, FRB reduces the dollar which is over-released in the market gradually. For this, FRB raises its interest on a loan, inducing investors to put their money in the bank and earn more dollars than other investment market. Conversely, investors who have rented money from the bank attempt to return the debt before they get huge.

In the point view of developing countries, this causes a rapid outflow of their foreign currency funds. Especially for the countries which have trade deficit, poor finance and few exchange funds, the damage is very large. Trade deficit is occurred when the amount of imports exceeds the amount of exports, causing a decrease in domestic currency value. As a dollar is widely used in trade, trade deficit leads the increase of expense to buy a imported goods. When the country has a poor finance, it means their economy is highly depending on the foreign investments. Because of this, lack of foreign currency(dollar) caused by tapering strikes a fatal blow in their economies. Eventually, the more amount of tapering, the higher unstability of emerging markets.