China Calls the Shots in Asia's Currency War

Manila Bulletin, February 21, 2015 | Go to article overview

China Calls the Shots in Asia's Currency War


Singapore - As fears of a global currency war grow, all eyes in Asia are on whether China will devalue its currency to avert a sharper economic slowdown.

The urgency with which Asian central banks are cutting interest rates is an indication of not just the deflationary forces they are seeing but also recognition that if China weakens the yuan, their policy options will be severely limited.

Indonesia was the latest to surprise investors on Tuesday with a rate cut, joining Singapore, India and China, all of whom have unexpectedly eased policy this year to spur growth.

Bank Indonesia's rate cut was in some ways a reminder of how critical China's yuan is to the region's policy making.

Indonesia has a weakening currency and inflation that is falling but still elevated. Yet Tuesday's move hinted at an urgency to act before two major risks play out: a spike in US bond yields or a sharp weakening of the yuan.

Both scenarios could cause steep falls in the Asian currencies and a flight of foreign capital.

While the jury is out on when and how fast the US Federal Reserve will raise rates, the odds of China weakening the yuan are growing, albeit from very low levels.

"It's no longer inconceivable that China will go for a weaker currency," said Frederic Neumann, HSBC's co-head of Asian economics research based in Hong Kong.

Deflationary pressures in China are stoking expectations that it could follow Japan and other European nations by easing policy to put a floor under domestic prices, he said. Such moves have triggered major weakening in the yen, euro and other currencies.

"China could throw a spanner in the works for central banks looking to ease policy. They may have to stem currency weakness by keeping rates higher than otherwise would be, and that should be a major dampener on growth because these economies are highly dependent on credit to drive consumption," Neumann said.

YUAN AS ANCHOR

China justifiably can weaken the yuan, which has appreciated considerably in trade-weighted terms in the past year.

Consumer inflation in the world's second-largest economy is at a 5-year low, while factory deflation is deepening. Because Beijing is trying to restrain local debt, it has been loath to cut rates aggressively or increase government spending.

A weaker yuan would help prop up export earnings, boosting growth and creating jobs in an economy that grew at its slowest pace in 24 years in 2014. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

China Calls the Shots in Asia's Currency War
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.