Money transactions

Speculative investment is when money is invested purely to make a quick, high profit. This money, known as 'hot' money, moves around the world very fast: 75% of hot money is moved to another place within a week.

More and more money is invested solely for speculation (see graph).

LONG TERM INVESTMENTS: investments that continue for a long time.

SPECULATIVE INVESTMENTS: investments that are bought in the hope of making a quick profit.

These speculative investments are very unstable.

They do not help countries to develop. Quite the opposite: the sudden removal of capital from a country can result in a severe economic crisis, and hardship for the people.

In South Korea, for example, 10,000 people are losing their jobs every day

UNSTABLE: likely to change very quickly

What can be done?

The movement of hot money could be controlled. For example:

• There could be a standardised foreign currency transaction tax throughout the world. This would discourage short-term speculative investment, but it would have little effect on long-term investment.
• Developing countries could insist that a percentage of money that is invested for only a short time must remain in the country. In Chile, for example, 30% of short-term investment must go into the Central Reserve Bank for one year, without receiving interest. Again, this encourages more stable, long-term investment.