Currency trading articles
Asian forex reserves are not sinister
This year's tremendous growth in Asian forex reserves is astonishing. Asia as a whole now holds about two thirds of the world's foreign currencies – more than 2.5 trillion dollars. At the moment China has passed Japan as the world's largest forex holder. China's People Bank combined with Hong Kong's Monetary Authority are approaching 870 billion dollar reserves, well ahead of Japan's 830 billion's.
Some American politicians and economists claim that this immense upsurge in foreign currency reserves is evidence to their manipulation of the forex market so that their currencies will remain undervalued. They assert that this is a part of an export-led policy, hoping to achieve growth on the sole means of massive export to the west.
Most critics pointed countries with fixed exchange rates. In fact, the major holders of Asian forex reserves show very diverse currency systems, but all have showed similar growth. Only China and Hong Kong had a formal peg to the dollar, until this July when China has switched to a basket of major currencies float. Japan has a floating currency and its forex reserves showed the highest growth till this year. All other major players show some degree of flexibility.
Most Asian countries have a valid reason to accumulate such extensive reserves. China is protecting herself from another economical crisis, as the one Asia suffered during the late nineties. Japan is fighting growing deflation and trying to keep some stability of its currency. Mostly, the accusations are based on partial data and prejudice. Though the Asian forex policy is questionable in regards to its financial logic, it is most likely not sinister.
Christopher Young, Editor. Sep 22nd, 2005.
