News / Asia

Asian Banks Face Challenge of Holding Back Cash Flow

Governments in Asia are grappling with how best to keep their economies growing as capital flows increase and exchange rates rise. Economists say central banks are bracing for a flood of money as two of the world's largest economies, Japan and the United States, take new measures to stimulate their economies.

This week, Japan's central bank governor, Masaaki Shirakawa, urged advanced economies to continue to stimulate their economies. That means keeping very low interest rates and flooding markets with money to encourage bank lending and consumption.

Japan has cut interest rates to between zero and 0.1 percent and opened a $60 billion fund to buy government bonds and other assets. And the U.S. Federal Reserve indicated it could take a similar action, called quantitative easing, soon.

But economists in Asia worry about the consequences. The big risk is that investors will shift ever more money to higher-return investments in the region, driving up prices for property and stocks, says Song Seng-Wun, chief economist of CIMB bank in Singapore.

"There's going to be a lot more dollars out there, which means more money coming this way, he says. "Governments everywhere know that liquidity will go where they will find yield."

Interest rates in many Asian countries, while relatively low, are still higher than in Japan and the United States so investors make more money here. Funds that are traditionally invested in U.S. treasuries have been moving to Asian bonds. China, which has $2.6 trillion in foreign exchange reserves, nearly tripled its holdings of South Korean government bonds in the first nine months of the year.

But the inflow of capital pushes up the value of Asian currencies, making exports more expensive and jeopardizing economic output. For example, exports account for about half of South Korea's economy and the Korean won is near a five-month high against the dollar.

The yen hovers at a 15-year high despite efforts by the Bank of Japan to weaken it by buying up dollars. In Australia, a boom in commodities has lifted the Australian dollar to nearly par with the U.S. dollar. The Indonesia rupiah is at a three-year high.

Capital inflows increase volatility in the financial markets, says Jeong Young-sik, a research fellow at the Samsung Economic Research Institute in Seoul.

"This capital inflow tends to go to short-term investments and go out as profits are made," says Jeong.

Typically, central banks raise interest rates when there is a lot of money circulating in the system, which can lead to rising inflation. But in many Asian countries, higher rates would attract more funds, pushing up the value of their currencies and hurting exports.

Indonesia and Australia kept rates steady this month, as did the Bank of Korea Thursday.

Jeong says the South Korean central bank has a difficult balancing job. Consumer prices in September rose at an annual rate of 3.6 percent, near the top of its preferred inflation rate.

"(Yet) If they raise the key interest rate, the won would appreciate much more sharply," he points out.

The Korean central bank said it aims to maintain price stability while sustaining economic growth under an easy monetary policy.

The Monetary Authority of Singapore Thursday widened the trading band for the Singapore dollar, allowing greater room for adjustment to balance inflation risks and market volatility.

Song at CIMB says it is not certain the policy mix in Asia will work.

"So countries are doing that and more would be looking at that kind of management in terms of the flows. [People are] just keeping fingers crossed that all these measures would see more balanced flow, and less disruption on the exchange rates, while praying that Uncle Sam's economy will be on even keel and therefore some of the flows will return to the United States," Song says.

The Bank of Thailand will decide next Wednesday whether to raise interest rates from 1.75 percent, the lowest in Asia outside Japan. The Thai baht has strengthened 11 percent this year and Thai exporters warned of layoffs as demand for their products fall.

All of this maneuvering to keep currencies from strengthening and economies growing is sparking international fears of a currency war: a round of competing measures to weaken exchange rates. Japanese officials this week have criticized both South Korea and China for controlling their currencies' rise. And a top U.S. senator, while visiting China this week has pushed Beijing to allow its currency to rise more quickly.

You May Like

VOA Exclusive: Interview With Myanmar President Thein Sein

Thein Sein calls allegations that minority Muslim Rohingya are fleeing alleged torture in Rakhine state a media fabrication More

Video Better Protective Suit Sought for Ebola Caregivers

Current suit is uncomfortable, requires too many steps for removal, increasing chance of deadly contact with virus More

UN Rights Commission Investigates Eritrea

Three-member commission will start collecting first-hand information from victims and other witnesses in Switzerland and Italy next week More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Ebola Economic Toll Stirs W. Africa Food Security Concernsi
X
November 19, 2014 11:39 PM
The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Mexico Protests Escalate Over Disappearances

Protests in Mexico over 43 students missing since September continue to escalate, reflecting growing anger among Mexicans about a political system they view as corrupt, and increasingly tainted by the drug trade. Mounting outrage over the disappearances is now focused on the government of President Enrique Pena Nieto, accused of not doing enough to end insecurity in the country. More from VOA's Victoria Macchi.
Video

Video US Senate Votes Down Controversial Oil Pipeline - For Now

The U.S. Senate has rejected construction of a controversial pipeline to transport Canadian oil to American refineries. The $5 billion project still could be approved next year, but it faces a possible veto by President Barack Obama. As VOA’s Michael Bowman reports, the pipeline has exposed deep divisions in Congress about America’s energy future.
Video

Video Can Minsk Cease-fire Agreement Hold?

Growing tensions between government troops and separatists in eastern Ukraine further threaten a cease-fire agreement reached two months ago in the Belarusian capital of Minsk. Critics of U.S. policy in Ukraine say it is time the Obama administration gives up on that much-violated cease-fire and moves toward a new deal with Russia. VOA's Scott Stearns has more.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.
Video

Video Ferguson Church Grapples with Race Relations

Many white residents of Ferguson, Missouri, say they chose to live there because of the American Midwest community's diversity. So, they were shocked when a white police officer killed an unarmed black teenager in August – and shaken by the resulting protests and violence. Some local churches are leading conversations on how to go forward. VOA’s Ayesha Tanzeem reports.
Video

Video What Jon Stewart Learned About Iran From 'Rosewater'

Jon Stewart, host of the satirical news program "The Daily Show" talks with Saman Arbabi of Voice of America's Persian service about Stewart's directorial debut, "Rosewater."
Video

Video Lebanese Winemakers Thrive Despite War Next Door

In some of the most volatile parts of Lebanon, where a constant flow of refugees crosses the border from Syria, one industry continues to flourish against the odds. Lebanese winemakers say after surviving a brutal civil war in the 1970s and 80s, they can survive anything. Heather Murdock has more for VOA from the Bekaa Valley in Lebanon.
Video

Video China's Rise Closely Watched

China’s role as APEC host this week allowed a rare opportunity for Beijing to showcase its vision for the global economy and the region. But as China’s stature grows, so have tensions with other countries, including the United States. VOA’s Bill Ide in Beijing reports on how China’s rise as a global power is seen among Chinese and Americans.

All About America

AppleAndroid