EMERGING MARKETS CURRENCY INTERVENTION

Not ringing any bells?

Well oh dear. You’d best get to know him. According to Reuters, he’s Dipak Dasgupta, the Indian finance ministry’s principal economic adviser. Which sounds like far too mild-mannered a title considering how Dasgupta’s just responded to India’s exposed position in the great EM sell-off.

Reason: the whopper of a statement he put out on Friday promising coordinated intervention from emerging market central banks in a bid to shore up the rupee.

What’s more, this was coming in a matter of days, not weeks.

From Reuters:

Dasgupta said there had been correspondence among the countries on the plans in the last few weeks and predicted action would come quickly, but he declined to share specific details of the discussions. “It is going to happen in a matter of days rather than weeks,” he said. “Brazil and India can start the move.” It was not immediately clear how many takers there were for such a proposal from other major emerging economies.

Although there wasn’t (err) much of a market impact following the Reuters story’s publication (in fairness, Indian markets were winding down for the day).

We’re not too surprised.

After all, what Mr Dasgupta’s effectively asking for is that other EM countries with larger FX reserves — such as China, Russia and Brazil — be kind enough to substitute big chunks of their foreign exchange (most notably the US dollar sort) for rupees instead.

This is, to be sure, a big ask.

No, it’s actually a huge ask.

Even China with its bold aspirations for reserve diversification would be shy to move on this one. Though, we should point out that Dasgupta is actually targeting a much broader range of friendly EM central banks: there’s also South Africa, Turkey and Malaysia on his list.

But asking these EM countries to dump foreign exchange willy nilly into the foreign exchange market is unlikely to have much impact. Even if, hypothetically, they were to form a support system in which they all displaced foreign reserves in favour of each other’s respective currencies, domino style — this might boost EM currencies overall but it would do little to boost the rupee.

Intervention, after all, is a game of relativity. Unless these EM countries are willing to accumulate Indian rupee-denominated assets disproportionately to each other’s, the chances of the Indian currency getting a lift out of such talk is slim.

Much more logical would be to sell a bunch of India’s gold internationally in exchange for dollars.

Or perhaps… that’s what the coordinated intervention will turn out to be? China acquiring some Indian gold in exchange for dollars, which India then uses to defend the rupee?

No, we daresay what the story is much more likely to be is that, well… FT Alphaville (not so) fondly remembers the dog days of the eurozone crisis in 2011 and 2012.

Barely a week would go by without a rumour that the IMF (or the Chinese, or the Brazilians, or anyone from the Lands of Suitably Large FX Reserves) was set to fund the EFSF (or the ESM, or the EIB — you get the pattern) with loadsamoney to buy up the bonds of Italy or Spain or whoever was in trouble. These stories would usually be good for a quick pop in US equities before fading until the next week’s bazooka.

Since the EM countries worst-hit by capital outflows seemingly can’t directly convince the major western central banks to think of their plight before tightening policy… why not nick from that part of the playbook?