Asia must brace for currency shocks—IMF
7/13/10
ASIAN nations need to be prepared for potential shocks, including a surge in capital inflows, even as the region demonstrates resilience to Europe’s fiscal woes, the head of the International Monetary Fund said Monday.
Excessive capital movement “creates instability,” IMF managing director Dominique Strauss-Kahn said at the Asia 21 high-level conference in the South Korean city of Daejeon. Policy makers must cope “through different tools, including revaluation of the currency, accumulation of reserves, prudential rules, and if necessary as we’ve seen on a temporary basis, capital control was absolutely needed.”
Asian economies have led the global economy, sparking the risk of a flood of capital that could push up asset prices, and regulators from South Korea to Indonesia have taken measures to head off currency volatility. The region should boost domestic consumption and investment to sustain growth, Strauss-Kahn said.
The IMF last week projected Asia would expand by 7.75 percent this year compared with global growth of 4.6 percent. The Washington-based Fund also warned that financial-market turmoil had increased the risks to the world’s recovery.
Strauss-Kahn said the IMF and South Korea were working on crisis-prevention tools for an effective global financial safety net to support Asian and other emerging economies vulnerable to external shocks. In an interview, he declined to comment on the specifics of the plans as the discussions had yet to conclude.
Strauss-Kahn warned that exchange-rate gains would not be a panacea for global trade imbalances. The administration of US President Barack Obama is pressing China to allow a stronger yuan to help diminish the nation’s trade surplus, which was a wider-than-forecast $20 billion in June, a government report showed July 10.
“Even full appreciation of the renminbi will not solve imbalances,” Strauss-Kahn said in the interview, using another term for China’s currency.
The yuan has strengthened 0.8 percent since officials ended a fixed peg of 6.83 per dollar last month. Twelve-month non- deliverable forward contracts climbed 0.1 percent to 6.6579 per dollar as of mid-afternoon Monday in Hong Kong, according to data compiled by Bloomberg, signaling an appreciation of 1.7 percent from the yuan’s spot rate of 6.7715 per dollar, according to the China Foreign Exchange Trade System.
Strauss-Kahn, a former French finance minister, said in his earlier remarks that the Bank of Korea’s interest-rate increase last week reflected strong economic growth, with the nation’s actual output fast approaching its potential pace.
The bank on Monday increased its 2010 growth forecast to 5.9 percent from the 5.2 percent projected in April, after boosting its benchmark interest rate by a quarter point to 2.25 percent on July 9, the first increase since the global crisis. Bloomberg
7/13/10
ASIAN nations need to be prepared for potential shocks, including a surge in capital inflows, even as the region demonstrates resilience to Europe’s fiscal woes, the head of the International Monetary Fund said Monday.
Excessive capital movement “creates instability,” IMF managing director Dominique Strauss-Kahn said at the Asia 21 high-level conference in the South Korean city of Daejeon. Policy makers must cope “through different tools, including revaluation of the currency, accumulation of reserves, prudential rules, and if necessary as we’ve seen on a temporary basis, capital control was absolutely needed.”
Asian economies have led the global economy, sparking the risk of a flood of capital that could push up asset prices, and regulators from South Korea to Indonesia have taken measures to head off currency volatility. The region should boost domestic consumption and investment to sustain growth, Strauss-Kahn said.
The IMF last week projected Asia would expand by 7.75 percent this year compared with global growth of 4.6 percent. The Washington-based Fund also warned that financial-market turmoil had increased the risks to the world’s recovery.
Strauss-Kahn said the IMF and South Korea were working on crisis-prevention tools for an effective global financial safety net to support Asian and other emerging economies vulnerable to external shocks. In an interview, he declined to comment on the specifics of the plans as the discussions had yet to conclude.
Strauss-Kahn warned that exchange-rate gains would not be a panacea for global trade imbalances. The administration of US President Barack Obama is pressing China to allow a stronger yuan to help diminish the nation’s trade surplus, which was a wider-than-forecast $20 billion in June, a government report showed July 10.
“Even full appreciation of the renminbi will not solve imbalances,” Strauss-Kahn said in the interview, using another term for China’s currency.
The yuan has strengthened 0.8 percent since officials ended a fixed peg of 6.83 per dollar last month. Twelve-month non- deliverable forward contracts climbed 0.1 percent to 6.6579 per dollar as of mid-afternoon Monday in Hong Kong, according to data compiled by Bloomberg, signaling an appreciation of 1.7 percent from the yuan’s spot rate of 6.7715 per dollar, according to the China Foreign Exchange Trade System.
Strauss-Kahn, a former French finance minister, said in his earlier remarks that the Bank of Korea’s interest-rate increase last week reflected strong economic growth, with the nation’s actual output fast approaching its potential pace.
The bank on Monday increased its 2010 growth forecast to 5.9 percent from the 5.2 percent projected in April, after boosting its benchmark interest rate by a quarter point to 2.25 percent on July 9, the first increase since the global crisis. Bloomberg