Asian Currency Losses Grow

Asian currencies continued to decline on Monday as hopes that the Federal Reserve will continue to hike interest rates rapidly were boosted by better-than-expected US employment data and hawkish comments from US policymakers. Additionally, investors are getting ready for US inflation data this week that might affect the Fed’s decision on interest rates in November. Rising recession risks, increased energy costs, and simmering Sino-US tensions as a result of new US limitations on China’s access to its semiconductor technology all lowered optimism in the region. In contrast to the Malaysian ringgit and Philippine peso, which saw little movement, the South Korean won, Thai baht, Indonesian rupiah, Singapore dollar, and Taiwanese dollar all experienced declines. The yen is currently strengthening due to a number of factors, including:

1) Japan’s import bill is going down thanks to lower oil costs. Their trade surplus has replaced their trade deficit as a result. While the value of exports is down 14% yoy, the value of imports is down 25% yoy because all categories of imports are currently declining on a yoy basis. So that’s one explanation for how a weak economy may actually be strengthening the yen.

2) The effects of Bank of Japan action are waning. The effects of the BoJ’s extremely loose monetary policy gradually diminish over time. It’s lost its oomph, which it formerly had.

3) More aggressive hedging of foreign bond portfolios. Many foreign bonds are held by Japanese investors. They hedge those holdings by selling dollars in advance when they become concerned about the potential value of the currency. The dollar tends to fall as a result.

Currency Losses: An introspective

Finally, compared to Japan, other Asian countries are more reliant on exports. The value of most nations’ exports is declining as trade around the world slows. Asian currencies outside of Japan are losing value as a result.

Intentional inflation is frequently used by nations to promote employment. If the value of the currency is constantly declining, overseas employers will be enticed to hire personnel in your nation. This is one strategy to compete for employment globally. Because employees want to convert their eroding salaries into goods and services as soon as possible, it also promotes domestic consumption. This has generally been regarded by many governments as sound economic policy since 1900 or more. The criticism of it is that it tends to stifle long-term growth by distorting the market. It’s similar to taking a shot of caffeine; it makes you more alert initially, but ultimately the high wears off and you need another fix. You eventually require regular shots just to maintain your vision.

In essence, Petrodollars are simply oil profits denominated in U.S. dollars.  They can be described as the U.S. dollar received from the sale of oil. Petrodollars earned by countries that export oil depend on the price. At which oil is sold as well as the amount that is exported. Both of which are reliant on the amount of oil produced. In spite of any implemented pricing mechanism, the actual market price for oil is eventually determined by the whole global supply of oil and the total global demand.

Unlike the European Currency Unit, which served as the forerunner to the Euro, the Asian Currency Market is a planned basket of Asian currencies. The feasibility study and basket’s construction are the responsibility of the Asian Development Bank.

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