If, as a result of capital inflows, there is an excess supply of foreign currency, the central bank must buy it and sell yuan to keep the exchange rate stable.

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That would have one beneficial effect, by discouraging the inflows of short-term foreign capital that have pushed up the value of Brazil's currency, the real, thereby making Brazil's exports less competitive.

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Brazil has also tried to limit an influx of foreign capital, which has forced the real currency to new highs, making the country's manufacturers less competitive.

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Take its recent attempt to defend the currency by raising the statutory reserve requirements to as high as 40%. (This unwise move has the IMF's fingerprints all over it.) It merely restricts the amount of local currency available for changing into foreign currency, thus artificially containing incipient capital flight.

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Two kinds of capital stand out: short-term debt, and debt denominated in foreign currency.

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Moreover, Malaysia's sweeping new capital controls will impede trade, because they make it harder for importers to get hold of foreign currency.

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It was also to blame for the recession that hit the country when foreign capital flowed out in 1995 for fear of an Argentine version of Mexico's currency crash.

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The amounts they raise on global capital markets are pretty trivial: less than 2% of South Korean and Singaporean government debt is denominated in foreign currency, for example.

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