What is Hot money or Hot money?

Its term in English ishot money, which means hot money. It refers to the money in bank balances or liquid assets rapidly moving from one country to another to create profitability short term. However, one can also speak of speculative capital flows to refer to the same term.

Hot money can have both positive and negative consequences, depending on how we look at it. On the one hand, speculative capital flows can make a country's balance of payments positive by not showing a deficit, even though the salting of the current account balance is in deficit.

However, thehot money may not intend to stay in the country, which causes countries with large amounts of speculative capital flows to be affected in their balance of payments (deteriorating) due to rapid capital inflows-outflows.

These inputs-outputs can beda├▒inas in countries where there are fixed exchange rates, generating devaluations and therefore normally incurring transaction costs due to an unlikely repurchase of the devalued currency.

Some countries tend to establish restrictions in order to avoid these adverse effects of speculative capital flows that can affect the country's economy, specifically the country's balance of payments.

As for the most outstanding characteristics of hot money, we find:

  • It has a great volatility, easily entering and leaving the country
  • They are short-term capital flows, trying to obtain maximum profitability
  • It is made up of private capital flows

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