CURRENCY WARS IN ASIA

ABENOMICS AND CURRENCY WARS.WHAT ARE WE TO DO

Tan Sri Lin See-yan

The Star, May 4, 2013

ABENOMICS, the aggressive management blend of monetary and fiscal stimuli to reflate Japan's stagnant economy, according to Prime Minister Shinzo Abe. Consequently, yen weakened considerably notching 23 weeks of back-to-back falls against the US dollar, completing the longest losing streak in 24 years. The sell-off brought it within striking distance of 100 yen to US$1, a level not seen since 2009.

US dollar has since climbed 25%, and the pound 9%-10% against the yen since mid-April. Worries are that yen can move to within 110. This has led to a growing chorus of emerging nations (including China, Russia, Colombia and Thailand) expressing alarm over the prospect of “currency wars.” Indeed, many nations around the world are vying to keep their currencies “weak” as well, through “macro-prudential” means, including limited interventions. So much so the Moscow G-20 meeting in February had to re-affirm that economic stimulus policies should be aimed at lifting domestic growth and not target exchange rate.

The Asian Shadow Financial Regulatory Committee (of which I am a member) recommended at its April 18 meeting at Shanghai's Fudan University that (i) Asian economies particularly those in North-East Asia, should refrain from competitive devaluation and protectionist policies, which would have a negative impact on world trade flows; (ii) the Bank of Japan should be considerate, cautious and transparent in undertaking further quantitative easing, by not targeting a weak yen and taking into account the concern of others; and (iii) IMF and, in particular ADB need to closely monitor international financial flows and strengthen its surveillance framework for macroeconomic policies of nations so that it will be more effective in promoting global monetary stability.

(...) [article here]