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The Asian economies do not seem to have learnt a lesson on the last crisis that hit tem in late 90s. The Dollar addiction of these export driven economies makes them hostage to the fluctuations of the Greenback.
With US not able to control it fast mounting debt there is a very real scenario of the Dollar crashing. All the asian countries including India have huge reserves of US Dollar and any sign of the Dollar crashing is making them sweat.
This is an op-ed in mint which does paint a grim scenario for the Asian economies. In light of this articles the recent decision by the RBI to buy 200 Tons of Gold makes immense logic. IMO we can expect more such purchases by the RBI.
Cautious Asian bankers may call Obama’s loan
With US not able to control it fast mounting debt there is a very real scenario of the Dollar crashing. All the asian countries including India have huge reserves of US Dollar and any sign of the Dollar crashing is making them sweat.
This is an op-ed in mint which does paint a grim scenario for the Asian economies. In light of this articles the recent decision by the RBI to buy 200 Tons of Gold makes immense logic. IMO we can expect more such purchases by the RBI.
Cautious Asian bankers may call Obama’s loan
Cautious Asian bankers may call Obama?s loan - Columns - livemint.comBarack Obama sure has lots to discuss on his maiden voyage to Asia as US President. Yet all this is just conversation compared with the real issue on Asia’s mind: a wobbly dollar that’s putting the region’s money at risk.
Think of this trip as a visit to America’s banker, and an unpleasant one. Asia wants assurances that the US can repay its fast-mounting debt and prevent a dollar crash. The reality dawning on Asia is that Obama can’t offer them such a pledge—not with US borrowing so out of control.
Dollar anxiety is reaching a fever pitch. It’s sucking the life out of key issues pertaining to the future, and it’s time to do something about it. Asia needs a plan to scrap its dollar addiction, and it can start in Singapore this week.
Let’s dispense with the fiction that the annual Asia-Pacific Economic Cooperation (Apec) group summit will achieve much. Trade frictions are rising, the US is mired in recession, Japan is experiencing deflation and big pacts on climate change or denuclearizing North Korea are non-starters.
The best way to use this summit is to discuss an exit strategy. Not an end to government stimulus efforts, but a dismantling of Bretton Woods II. The system of tying currencies to the dollar that emerged after the crises of 1997 and 1998 is doing more harm than good.
Currency risk
In 2009, Asia’s currency-reserve arms race is mostly about risk. The wisdom of amassing huge dollar stockpiles was once clear enough. It was about walling off economies in times of turmoil and not having to go hat in hand to the International Monetary Fund (IMF). Now Asia is trapped.
IMF crystallized the problem recently when it said the dollar is still overvalued. Considering the US’ debt load, near-zero interest rates and rising unemployment, the currency is clearly too strong. A weaker dollar makes sense and it’s what the global economy needs. Asia must deal with it.
Asia doesn’t have a policy infrastructure to oversee such an effort. Japanese Prime Minister Yukio Hatoyama’s desire for an Asian version of the European Union is great—it’s just a decade or more away. Apec is still an opportunity to pave the way for Asia to repatriate trillions of dollars and stop being America’s financier.
Within its means
It won’t be easy and, chances are, US treasury secretary Timothy Geithner would respond coolly. Yet the money could be used to deepen Asian bond markets and finance better roads, bridges, ports and power grids. It could fund vitally needed improvements in education and healthcare.
Just as Asia needs to stop parking its savings in the US, the biggest economy must learn to live without Asia’s money. It would force the US to live within its means.
Yes, this is a far-fetched idea. And there’s no widely accepted way to go about the process. The point is that we need to get radical if we are going to reduce financial imbalances. In Asia, that means letting currencies strengthen and the dollar weaken. Few things would do more to stabilize markets than this shift playing out in a smooth way.
We can wait until the dollar collapses and Asian central banks rush for the exits. Or we can devise a transparent process to avoid such a scenario. It may not happen without an Asian version of the Plaza Accord, the 1985 agreement to weaken the US dollar against the yen. Why would South Korea or Thailand wean themselves off dollars if China won’t?