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

Video Anti-Muslim Sponsor of Texas Cartoon Contest Draws Ire

Pamela Geller's supporters say she speaks truth about sensitive topic, while critics say she preaches 'that Islam is inherently evil' More

East Meets West in Exhibition Showing Chinese Influence on Fashion

Metropolitan Museum of Art exhibition juxtaposes influence of art, imagery and culture, from Imperial China to the present day, on Western fashion and design More

South Africa Begins New Love Affair With Vinyl Records

Enthusiasts say the 'rebirth' of vinyl is resulting in a rebirth of music in South Africa 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.
Mass Grave Exposes Entrenched Trafficking in Thailandi
X
May 05, 2015 5:50 PM
Police in southern Thailand have found two more camps believed to have held human trafficking victims -- one containing a buried skeleton. This comes just days after officials announced arrests in connection with the grisly discovery of 26 bodies in a mass grave at another location. Officials suspect as many as 400 mostly ethnic Rohingya from Myanmar were being held for ransom at the remote camp near the Malaysian border. Steve Sandford reports on developments in the case.
Video

Video Mass Grave Exposes Entrenched Trafficking in Thailand

Police in southern Thailand have found two more camps believed to have held human trafficking victims -- one containing a buried skeleton. This comes just days after officials announced arrests in connection with the grisly discovery of 26 bodies in a mass grave at another location. Officials suspect as many as 400 mostly ethnic Rohingya from Myanmar were being held for ransom at the remote camp near the Malaysian border. Steve Sandford reports on developments in the case.
Video

Video Russia's 'Victory Day' Glory Over Nazis Overshadowed by Ukraine

ussia is preparing to commemorate the 70th anniversary of the end of World War II, known since the Soviet era as “The Great Patriotic War,” with a massive parade on May 9th of military hardware and millions of medals handed out to veterans or their relatives. But critics say the Soviet-style display of power and nationalism overshadows tragic scars during and after the war that still influence politics and foreign policy, especially in the current Ukraine crisis.
Video

Video WWII Anniversary Brings Old Friends and New Worries

The 70th anniversary of the end of World War II has special significance, with Russia becoming more assertive in Ukraine and sending its military planes to the edges of western countries’ airspace. Changes in the geostrategic balance and the transatlantic relationship are felt across the continent, not least in German towns that have hosted U.S. military bases since the defeat of Nazi Germany. VOA’s Al Pessin visited Schweinfurt, Germany, where a large base closed last year.
Video

Video Abraham Lincoln Funeral Re-created for 150th Civil War Anniversary

Over the last four years, commemorative events to mark the 150th anniversary of the U.S. Civil War have brought thousands of visitors to battlefields and historic landmarks across the country. As VOA's Kane Farabaugh reports from the Midwest state of Illinois, the final event in the Civil War's sesquicentennial honors the final journey home of the slain American President, Abraham Lincoln.
Video

Video Campaign Raises Money to 'Uncuff' Journalists

Beginning Sunday – World Press Freedom Day – the Committee to Protect Journalists, a private U.S. group, is launching a campaign to bring attention to their plight and encourage efforts to free them. Deborah Block reports.
Video

Video Volunteers Pull Together to Aid Baltimore Riot Victims

Calm has returned to Baltimore, Maryland, after authorities lifted an overnight curfew imposed almost a week ago to stem the rioting that followed the funeral of Freddie Gray - the 25-year-old black man who died of spinal injuries suffered while in police custody. Six police officers, three of them African-American, have been charged in connection with his death. Baltimore is now trying to get back to normal, in part with the help of volunteers who responded to calls to help those in the city'
Video

Video From Aleppo To Berlin: Band of Brothers Escapes Civil War

Hundreds of thousands of Syrians have fled the civil war in their country and journeyed to Europe by boat across the Mediterranean. It is a terrifying ordeal with dangers at every turn. A group of Syrian brothers and their friends describe their ordeal as they try to reach Germany. VOA's Henry Ridgwell reports. ...
Video

Video Rural Nepal Suffers Brunt of Quake’s Devastation

Nepal is still coming to grips with the full extent of the devastation and misery caused by last Saturday’s magnitude 7.8 earthquake. Some of the hardest-hit communities have been cut off by landslides making it difficult to assess the precise toll. A VOA News crew has been among the first to reach a few of the smaller, remote communities. Correspondent Steve Herman reports from the Sindhupolchak district, east of Kathmandu, which suffered greatly in Nepal’s worst quake in more than 80 years.
Video

Video Obama Praises Work of 3 Immigrant Journalists

President Barack Obama met with three immigrant journalists at the White House Friday to praise them for their work ahead of World Press Freedom Day, May 3. In attendance: Dieu Cay (his pen name) a blogger from Vietnam recently released from prison; Lily Mengesha from Ethiopia who was harassed and detained for exposing the marrying off of young girls as child brides, and Fatima Tlisova, an ethnic Circassian from the North Caucasus region of Russia, who works for VOA's Russian Service.
Video

Video Middle East Atheist Channel Defies Taboo

In Egypt, a deeply religious country in a deeply religious region, atheism is not only taboo, it is dangerous. It is sometimes even criminal to publicly declare nonbelief. Despite the danger, one group of activists is pushing back with a new online channel that defends the right not to believe. VOA’s Heather Murdock reports.
Video

Video Nepal Quake Survivors Tell Their Stories

Against all hope, rescuers have found a few more survivors of the devastating earthquake that hit Nepal last Saturday. Mountain climbers and hikers trapped in remote places also have been airlifted to safety, and aid is finally reaching people in the areas closest to the quake's epicenter. Survivors and rescuers are now recounting their experience. Zlatica Hoke has this story.
Video

Video Lessons for Germany, Europe Remain on Anniversary of WWII's End

The 70th anniversary of the end of World War II will be marked May 8-9 in all European countries except Germany, which lost the war. How is the war viewed there, and what impact is it still having? From Berlin, VOA’s Al Pessin reports.
Video

Video Nepal Town Destroyed By Quake Counts Itself Lucky

Foreign search teams on Wednesday began reaching some of the communities outside Kathmandu that suffered worse damage than Nepal’s capital from last Saturday’s massive earthquake. VOA Correspondent Steve Herman is in Sankhu - a town of about 10,000 people - where there is relief the death toll is not higher despite widespread destruction.
Video

Video Somali Hotel Chain Owner Strives to Make a Difference

Many in the Somali diaspora are returning home to make a new life despite the continuing risks. Since 2011 when a military campaign against Al-Shabab militants began making progress, members of the diaspora community have come back to open hospitals, schools, hotels, restaurants and other businesses. Abdulaziz Billow in Mogadishu profiles the owner of a chain of hotels and restaurants who is helping to bring change to the once-deadly Somali capital.
Video

Video Child Migrants Cross Mediterranean Alone, Face Unknown Future

Among the thousands of migrants making the deadly journey by boat to Europe, there are unaccompanied girls and boys. Some have been sent by relatives to earn money; others are orphaned or fleeing war. From a shelter for young migrants in the Sicilian town of Caltagirone, VOA's Henry Ridgwell reports.

Poll: Baltimore Police Charged

Poll archive

VOA Blogs