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This paper analyses the recent changes in financial practices and relations in emerging capitalis t economies (ECEs) using the example of Brazil. It argues that in ECEs these financ ia l transformations, akin to the financialisation phenomena observed in Core Capitalist Economies (CCEs), are fundamentally shaped by their subordinated integration into a financialised and structured world economy. To analyse this subordinated financialisation the paper draws on the framework of international currency hierarchies. It shows by means of two specific processes how the existence of a hierarchic international monetary system has changed the financial behaviour of domestic economic agents and with it the structure of the financial system. The first process highlights the phenomenon of reserve accumulation and the changing behaviour of domestic banks. The second points to ECEs' sustained external vulnerability and its impact on the operations of Brazilian non-financial corporations. The paper also shows that not only were these financ ia l transformation shaped by ECEs' subordinated financial integration, but it was these financialisation tendencies themselves which contributed to cementing existing hierarchies and further deepened existing asymmetries between ECEs and CCEs.

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This article contributes to the debate on macroeconomic management and capital account regulations in developing and emerging countries (DECs). It argues that the recommendation by neoclassical economists and international financial institutions (IFIs) to combine an inflation-targeting regime with exchange rate management, whilst maintaining open capital accounts, is not only impossible but also potentially counterproductive. The article draws on extensive semi-structured interviews with currency traders in Brazil and London to show that this is due to the particular way such a regime shapes central bank interventions in the money and foreign exchange markets and the destabilizing way these interventions interact with financial market expectations. The interview results also demonstrate that the guidelines issued by IFIs actually undermine, rather than aid, DEC central banks' initial attempts to manage excessive exchange rate movements. These results support the long-standing argument by heterodox economists and critical international political economists that DECs need to make the exchange rate an explicit instrument and goal of their macroeconomic policy and complement it with comprehensive capital account regulations to reduce the destabilizing impact of international capital flows. The interview results also give some concrete suggestions on how to achieve this.

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Insofar as the global crisis of 2007–09 can be understood as a fully-fledged crisis of the financialization era, it has presented new challenges for central banks. However, this paper argues that the central banks' interventions in key middle income countries (Brazil and Korea) have reinforced the main characteristics of financialization and have been different from their previous foreign exchange crisis of the late 1990s. The key reasons for this sharp contrast in central bank interventions can be found in the origins of the recent crisis — in developed financial markets — which is different from the previous one which originated in emerging markets. Furthermore, the higher level of financial integration of both economies in relation to the late 1990s is a more important factor. The Korean and Brazilian experiences show that liquidity management by central banks has been conditioned by international capital flows, and more importantly they have reinforced this trend through their operations in spite of differences in the dynamics of capital flows, in their timing of reserve accumulation and in their level of financial integration.

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