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ASEAN ANALYSIS  7 October 2010

Currency appreciation raises anxieties

By David Swartzentruber
AseanAffairs     7 October 2010

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The battle over the teeter-totter effect of the falling value of the US dollar and the rising value of Asean currencies such as the Malaysian ringgit, Thai baht and Philippine peso may be reaching historic proportions.

For example, the value of the Thai baht has appreciated to below 30 baht to the U.S. dollar. In 1997, for example, the baht was pegged at 25 to the dollar. When that peg was removed, the value of the baht declined to the 40-50 range versus the dollar.

The battle has reached Washington D.C. as U.S. Treasury Secretary Timothy F. Geithner warned on Wednesday that the necessary rebalancing of the economy was “at risk of being undermined” by countries trying to prevent their currencies from rising in value.

Although Geithner’s comments were aimed at the larger economies of China, Japan and Brazil, they could have been addressed to the Asean economies, as well. Lower exchange rates may lift an economy by driving exports, but the danger is that the moves escalate into devaluations and protectionist retaliation, impeding global economic growth.

Industrial nations are searching for ways to stimulate growth amid lowered domestic demand, while emerging markets want to maintain the advantage that helped them deflect the credit crisis. Thailand has already moved to ease limits on money outflows to aid exporters.

Opinions are divided as to whether the world is on the verge of a currency war or a series of minor incidents.

Nevertheless, domestic forces within Asean countries now must deal with domestic calls to intervene as their currency appreciates. How currency movements play out should dominate the world scene during the next few months.

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