The central banks of several Asian countries that are fearful of the impact a weak dollar will have on their exports, intervened in the markets on Thursday to buy the troubled U.S. currency.
Currency traders have confirmed that the central banks of South Korea, Taiwan, the Philippines and Thailand were amongst those buying the dollar.
Hong Kong, Singapore, Malaysia and Indonesia were other countries identified as buyers of a currency which has been dumped by traders as the prospects of a sustained economic recovery have improved.
It is thought that the central bank in Russia was also acquiring the dollar at a time when the U.S. currency was hitting a 14-month-low against a basket of currencies.
As the
BBC reports, during the global financial meltdown the dollar was considered as a safe haven by those operating in the currency markets. But now there is a perception that retreating to such a safe haven may no longer be necessary.
The central banks themselves appear reluctant to speak about their interventions, with the exception of the Bank of Thailand, whose Assistant Governor Suchada Kirakul, according to the
Wall Street Journal, said:
The baht has appreciated a little too rapidly compared with our fundamentals
China's decision to "in effect re-peg the renminbi to the dollar", in the words of the
Financial Times, in July 2008 is also cited as a reason for the moves in to the currency markets by the Asian central banks, with the countries buying the dollar not wishing to lose out to China in the export market.
The renminbi had appreciated by some 20 per cent in the three years prior to last July but with the growth in exports from China slowing the "re-pegging" occurred.
In Europe too there are concerns at the manner in which the euro is strengthening against the dollar, with the President of the European Central Bank, Jean-Claude Trichet emphasizing that it is important the U.S. continues with a "'strong-dollar policy'". However, despite U.S. Treasury Secretary Timothy Geithner insisting that a strong dollar is indeed important, the
Wall Street Journal quotes one New York hedge fund Vice-Chairman, Jonathan Clark of FX Concepts, as saying:
The U.S. is willing to talk about a strong dollar, but not willing to do anything about it. If you're not going to back up words with actions, it's just talk
There appears, as might be expected, to be more than one opinion regarding what a weaker dollar does or could mean.
A healthy "rebalancing" of the global economy resulting in the U.S exporting more and the likes of China importing more is one scenario that is being envisaged.
Whilst a more pessimistic view is that a destabilization of the financial system could occur. Stanford economist John Taylor considers destabilization a possibility, explaining:
With the exploding federal debt, the enlarged Fed balance sheet, and proposals by (some) countries to look for dollar substitutes, a policy of benign neglect is particularly risky now and could lead to more instabilities
Others simply see the daily fluctuations in the dollar's value as typical of the manner in which the foreign exchange markets operate and advise against reading too much in to short term movements. The
Wall Street Journal notes that Richard Fisher, President of the Federal Reserve Bank of Dallas, is one who takes that view.
The
Financial Times is saying that traders do indeed believe that the central banks in Asia actually intervened in the currency markets in order to halt the slide in the dollar, or slow the pace of its drop in value, as opposed to slowing the appreciation of their own currencies. But it was also noted that the dollar's trade-weighted value is little different from what it was two years ago.
