Friday, October 16, 2009
Thursday, October 1, 2009
Asian currencies: The world’s bounciest economies have its most undervalued currencies
Bumped ~ Note: October 2009
"If China allows the yuan to rise, other Asian countries are likely to follow suit. Only then will Asia play its full part in global rebalancing"
October 1st 2009
Asian currencies: The world’s bounciest economies have its most undervalued currencies
The leaders of the world’s biggest economies agreed at the G20 meeting in Pittsburgh last month to work to prevent global imbalances of the sort that exacerbated the financial crisis. But talk is cheap, not least because the bigwigs did not even discuss exchange rates.
One of the biggest inconsistencies in the global economy today is the fact that emerging Asian economies have rebounded faster than any other region (the gap between their average growth rate and that of developed economies is likely to hit a record high this year), yet most of their currencies have fallen since 2008 in real trade-weighted terms.
By many measures—from the economist’s index to more sophisticated gauges—Asian currencies are among the world’s most undervalued.
Take China, the fastest-sprinting economy. In the three years to July 2008 the yuan climbed by 21% against the dollar. But for the past 14 months it has, in effect, been repegged to the dollar. As a result the slide in the greenback has dragged down the yuan’s trade-weighted value by almost 10% since the start of this year (see chart). Morris Goldstein and Nicholas Lardy of the Peterson Institute for International Economics estimated in July that the yuan was undervalued by 15-25%. Some smaller Asian currencies may be even more undervalued. The IMF calculated in March that by one measure South Korea’s won was 41% below its fair value (its trade-weighted value has since gained about 10%).
Continues ...read more ..
"If China allows the yuan to rise, other Asian countries are likely to follow suit. Only then will Asia play its full part in global rebalancing"
October 1st 2009Asian currencies: The world’s bounciest economies have its most undervalued currencies
The leaders of the world’s biggest economies agreed at the G20 meeting in Pittsburgh last month to work to prevent global imbalances of the sort that exacerbated the financial crisis. But talk is cheap, not least because the bigwigs did not even discuss exchange rates.
One of the biggest inconsistencies in the global economy today is the fact that emerging Asian economies have rebounded faster than any other region (the gap between their average growth rate and that of developed economies is likely to hit a record high this year), yet most of their currencies have fallen since 2008 in real trade-weighted terms.
By many measures—from the economist’s index to more sophisticated gauges—Asian currencies are among the world’s most undervalued.
Take China, the fastest-sprinting economy. In the three years to July 2008 the yuan climbed by 21% against the dollar. But for the past 14 months it has, in effect, been repegged to the dollar. As a result the slide in the greenback has dragged down the yuan’s trade-weighted value by almost 10% since the start of this year (see chart). Morris Goldstein and Nicholas Lardy of the Peterson Institute for International Economics estimated in July that the yuan was undervalued by 15-25%. Some smaller Asian currencies may be even more undervalued. The IMF calculated in March that by one measure South Korea’s won was 41% below its fair value (its trade-weighted value has since gained about 10%).
Continues ...read more ..
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