From a policy standpoint, exchange rates can be wielded to influence exports and imports, and hence, aggregate demand. Endowed with a gamut of policy instruments, governments can effectively use exchange rates to stimulate growth—but of course, not without consequences. Read more
Business World as a post on Options limited as Asia braces for currency wars:
The Malaysian ringgit has been trading at a 13-year high against the dollar, but the central bank has said the strength in the currency reflects Malaysia’s robust 9.5% economic growth rate in the first half of the year.
Bank Negara, the Malaysian central bank, said it would only intervene if there were any sudden or excessive movements.
A decision to intervene is not simple for the Reserve Bank of India, despite the rupee reaching over a two-year high against the dollar, as a strong currency is helping the central bank battle rising inflation, officials said.
South Korea is one country that is said by traders to have intervened repeatedly in the currency markets to put the brakes on the won’s rapid ascent.
Thailand’s central bank declined to say whether it intervened in the market after the baht hit a 13-year high against the dollar last week but dealers suspected it might have bought dollars.
In the Philippines, officials have expressed concern over the rise of the peso, but also admitted that the government had limited resources to help exporters deal with the problem.
“Policymakers in smaller Asian countries have to accept that they are powerless in the face of policy decisions made by the G3 (US, Europe and Japan) and China,” said Manu Bhaskaran, head of economic research at consultancy Centennial Group Inc.
Over at ABS-CBN more on the currency war:
Geithner added that the solidarity shown in the wake of the global financial crisis was at risk of disappearing as countries like China fail to reform.
“Our initial achievements are at risk of being undermined by the limited extent of progress toward more domestic demand-led growth,” he said, “and by the extent of foreign exchange intervention as countries with undervalued currencies lean against appreciation.”
European officials have also complained that their exporters were being victimized by an undervalued US dollar and Chinese yuan.
“The euro appears to be too strong today,” said the chairman of eurozone finance ministers, Jean-Claude Junker.
“We are not happy with the current real exchange rate of the Chinese currency.”
Peso closes at 2-year high of 43.88:$1
By Lawrence Agcaoili
The Philippine Star
MANILA, Philippines – The peso broke into the 43 to $1 territory yesterday, closing at a more than two-year high of 43.880 to $1 as the greenback remained under pressure after the US Federal Reserve decided to keep its benchmark interest rates at record lows but vowed to continue to supporting its fragile US economy.
The peso gained 12.50 centavos to close at 43.880 to $1 from Tuesday’s close of 44.005 to $1. The local currency opened stronger at 43.95 to $1 before closing at the day’s intraday high of 43.88 to the dollar.
This was its strongest level in 25 months or since it closed at 43.820 to $1 last Aug. 6, 2008.
Trade at the Philipping Dealing and Exchange Corp. remained brisk as $1.267 billion changed hands compared to $987.93 million last Tuesday.
Currency traders said in an interview that the US dollar fell sharply lower versus other currencies including the peso after the Federal Open Market Committee stated it was ready to provide stimuli for the US economy.
Traders said the US government printed more greenback in preparation for additional quantitative easing to address rising unemployment as well as falling prices.
The US Fed kept funds rate in the target range of zero to 0.25 percent “for an extended period” and maintained its policy of reinvesting principal payments from its securities holdings that it established in August.
The body said it would continue to ‘monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate’.
Another trader said the Bangko Sentral ng Pilipinas (BSP) intervened in the foreign exchange market to smoothen the movement of the peso against the US dollar.
The trader pointed out that the central bank shelled out as much as $400 million to intervene in the forex market yesterday.
Had the BSP not intervened, the trader said the peso could have strengthened further to 43.75 to $1.