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

Lion Cecil's Killing Sparks 'Canned Hunting' Debate in S. Africa

Conservationists believe incident, which triggered worldwide outrage, will reshape debate about practice in which hunters are allowed to target animals bred for hunting More

Taliban's New Leader Says Jihad Will Continue

Top US Afghan diplomat also meets with Pakistani, Afghan officials following news of Mullah Omar's death More

Environmentalists Issue Warning on Mekong Biodiversity

Scientists say decades of economic development, hydropower-dam construction, lax law enforcement and trafficking have taken their toll 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.
Astronauts Train Underwater for Deep Space Missionsi
|| 0:00:00
...    
🔇
X
George Putic
July 30, 2015 8:59 PM
Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Astronauts Train Underwater for Deep Space Missions

Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Civil Rights Leaders Struggled to Achieve Voting Rights Act

Fifty years ago, lawmakers approved, and U.S. President Lyndon Johnson signed, the Voting Rights Act of 1965. The measure outlawed racial discrimination in voting, giving millions of blacks in many parts of the southern United States federal enforcement of the right to vote. Correspondent Chris Simkins introduces us to some civil rights leaders who were on the front lines in the struggle for voting rights.
Video

Video Booming London Property a ‘Haven for Dirty Money’

Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Hometown of Boy Scouts of America Founder Reacts to Gay Leader Decision

Ottawa, Illinois, is the hometown of W.D. Boyce, who founded the Boy Scouts of America in 1910. In Ottawa, where Scouting remains an important part of the legacy of the community, the end of the organization's ban on openly gay adult leaders was seen as inevitable. VOA's Kane Farabaugh reports.
Video

Video 'Metal Muscles' Flex a New Bionic Hand

Artificial limbs, including the most complex of them – the human hand – are getting more life-like and useful due to constant advances in tiny hydraulic, pneumatic and electric motors called actuators. But now, as VOA’s George Putic reports, scientists in Germany say the future of the prosthetic hand may lie not in motors but in wires that can ‘remember’ their shape.
Video

Video Russia Accused of Abusing Interpol to Pursue Opponents

A British pro-democracy group has accused Russia of abusing the global law enforcement agency Interpol by requesting the arrest and extradition of political opponents. A new report by the group notes such requests can mean the accused are unable to travel and are often unable to open bank accounts. VOA's Henry Ridgwell reports.
Video

Video 'Positive Atmosphere' Points Toward TPP Trade Deal in Hawaii

Talks on a major new trade agreement among 12 Pacific Rim nations are said to be nearing completion in Hawaii. Some trade experts say the "positive atmosphere" at the discussions could mean a deal is within reach, but there is still hard bargaining to be done over many issues and products, including U.S. drugs and Japanese rice. VOA's Jim Randle reports.
Video

Video Genome Initiative Urgently Moves to Freeze DNA Before Species Go Extinct

Earth is in the midst of its sixth mass extinction. The last such event was caused by an asteroid 66 million years ago. It killed off the dinosaurs and practically everything else. So scientists are in a race against time to classify the estimated 11 million species alive today. So far only 2 million are described by science, and researchers are worried many will disappear before they even have a name. VOA’s Rosanne Skirble reports.
Video

Video Scientists: One-Dose Malaria Cure is Possible

Scientists have long been trying to develop an effective protection and cure for malaria - one of the deadliest diseases that affects people in tropical areas, especially children. As the World Health Organization announces plans to begin clinical trials of a promising new vaccine, scientists in South Africa report that they too are at an important threshold. George Putic reports, they are testing a compound that could be a single-dose cure for malaria.
Video

Video 'New York' Magazine Features 35 Cosby Accusers

The latest issue of 'New York' magazine features 35 women who say they were drugged and raped by film and television celebrity Bill Cosby. The women are aged from 44 to 80 and come from different walks of life and races. The magazine interviewed each of them separately, but Zlatica Hoke reports their stories are similar.
Video

Video US Calls Fight Against Human Trafficking a Must Win

The United States is promising not to give up its fight against what Secretary of State John Kerry calls the “scourge” of modern slavery. Officials released the country’s annual human trafficking report Monday – a report that’s being met with some criticism. VOA’s National Security correspondent Jeff Seldin has more from the State Department.
Video

Video Washington DC Underground Streetcar Station to Become Arts Venue

Abandoned more than 50 years ago, the underground streetcar station in Washington D.C.’s historic DuPont Circle district is about to be reborn. The plan calls for turning the spacious underground platforms - once meant to be a transportation hub, - into a unique space for art exhibitions, presentations, concerts and even a film set. Roman Mamonov has more from beneath the streets of the U.S. capital. Joy Wagner narrates his report.
Video

Video Europe’s Twin Crises Collide in Greece as Migrant Numbers Soar

Greece has replaced Italy as the main gateway for migrants into Europe, with more than 100,000 arrivals in the first six months of 2015. Many want to move further into Europe and escape Greece’s economic crisis, but they face widespread dangers on the journey overland through the Balkans. VOA's Henry Ridgwell reports.
Video

Video Stink Intensifies as Lebanon’s Trash Crisis Continues

After the closure of a major rubbish dump a week ago, the streets of Beirut are filling up with trash. Having failed to draw up a plan B, politicians are struggling to deal with the problem. John Owens has more for VOA from Beirut.
Video

Video Paris Rolls Out Blueprint to Fight Climate Change

A U.N. climate conference in December aims to produce an ambitious agreement to fight heat-trapping greenhouse gases. But many local governments are not waiting, and have drafted their own climate action plans. That’s the case with Paris — which is getting special attention, since it’s hosting the climate summit. Lisa Bryant takes a look for VOA at the transformation of the French capital into an eco-city.

VOA Blogs