[Emerging Market] Ponzi Scheme
A Ponzi scheme is a fraud in which purported high returns to earlier investors are paid from capital funds obtained from new investors.
Emerging Markets which have failed to accumulate foreign exchange reserves built through current account surplus will meet the fate of Ponzi scheme one day. They are paying returns & redemption to their earlier investors through fresh FDI / FII capital inflows. In the absence of sustained capital inflows (capital account surplus) they feel pressure on their currencies to depreciate. These countries have a limited window to jack up their exports of goods and services to generate current account surpluses or else they will meet the fate of Ponzi businesses – Bankruptcy for their own & emerging market investors losing money.