Central banks and governments in Asia are becoming more comfortable with appreciating currencies, according to an analysis by the Institute for International Finance.
The Washington-based group built a database that tracks foreign exchange intervention in spot and forward markets across Asia’s emerging economies, a region at the center of simmering trade tensions with the U.S.
“The exercise shows that ‘fear of floating’ has diminished in the region, especially in China and Malaysia,” IIF analysts led by Chief Economist Robin Brooks wrote in a note. With the Trump administration increasingly watchful of what it considers currency manipulation, countries are having to gauge the cost of letting their currencies rise against that of incurring displeasure from Washington.
Intervention remains comparatively intense and one-sided in Singapore and Thailand.
People’s Bank of China Governor Yi Gang said recently that policy makers haven’t intervened in the foreign exchange market for almost a year, Caixin reported.
Buying and selling dollars in forward markets is actively used by Asian central banks as the reserves bought don’t show up on central bank balance sheets and don’t need to be sterilized.
The IIF analysis of China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand found a greater tolerance for appreciation.
“This is especially so for China, which allowed the renminbi to appreciate unfettered by intervention in 2017,” they wrote. “Other countries that also look appreciation-friendly include Malaysia, which has essentially stood on the sidelines as its currency appreciated versus the dollar last year.”