The dollar’s rise over the past year is leaving some emerging markets increasingly exposed to capital outflow. The most vulnerable are beginning to falter, sending a warning signal to EM as whole. In a dollar-based system, countries have dollar liabilities but local-currency assets. When the US currency rises, it eventually puts intolerable strain on national balance sheets, weighs on the local currency, stokes inflation pressures and squeezes domestic growth. Just when such countries are in need of capital, higher US yields act as a magnet for international flows, sucking capital away from them. EMs are the weakest ... (full story)