The Brazilian action in imposing a tax on certain kinds of foreign inflows to moderate the rise in its currency is of great importance, substantive and symbolic. The symbolic value lies in signalling an end to an era in which emerging markets were enamoured with foreign finance, and in expressing willingness to take action to moderate inflows of foreign finance. Substantively, it is important in increasing the arsenal of weapons that countries can deploy to moderate over- heating of their economies. It is a good illustration of the type of measure policymakers can use to arrest incipient asset price overheating.

The International Monetary Fund's response to the Brazilian measure was lukewarm or even mildly negative. A senior official said: “These kinds of taxes provide some room for manoeuvre, but it is not very much, so governments should not be tempted to postpone other more fundamental adjustments. Second, it is very complex to implement those kinds of taxes, because they have to be applied to every possible financial instrument,” adding that such taxes have proven to be “porous” over time in a number of countries.

This response is disappointing not because it is wrong, but because it reflects business as usual in terms of the IMF's intellectual approach to financial globalisation. This approach has been to disapprove implicitly of such measures by asking countries to take a lot of complementary action (improving corporate governance, strengthening financial regulations and so on) in order to preserve foreign flows, considered sacrosanct by the IMF. For emerging market countries, the problem has been that it is not always easy to implement these actions in the short run, so that the practical and pressing issue of what to do with excessive inflows has remained with little guidance from the IMF on appropriate responses.