Various Asia central banks act to depreciate their currency

From the China media reports, as export declines and economy contraction replacing inflation and liquidity concerns, there are evidence that various Asia central banks have started to buy the US dollar which they have been previously selling to prop up their own currency value. The act is to help step up export through the depreciation of their own currency.

Start to buy the US dollar in the past 2 days
Patrick Bennett, Asian currency and fixed-income strategist at Societe Generale says that there are evidence that Singapore, Malaysia, India and South Korea's central banks in the past 2 days have started to buy in the US dollar.

HSBC mentioned that Thailand and Taiwan have switch policy towards depreciation of their own country's currency. Recently, Thailand started to buy in the US dollar since August 2007 and Taiwan started to buy in the US dollar since April this year.

Asia Development Bank warned last week that there is the need to prevent too much intervention and unnecessary actions in the forex market, especially the depreciation of the country's own currency.

Selling of the US dollar in the past 6 months
But in the past 6 months, as the global financial crisis pushes for risk avoidance causing the strong rally in the US dollar, in order to prevent funds from flowing out, a lot of Asia countries have been active in using their foreign exchange reserves to stop the pace of depreciation of their own country's currency against the US dollar.

As such, in October, South Korea, India, Singapore and Indonesia's foreign exchange reserve accumulated in the past 10 years have shown a decline.

To depreciate own country's currency to step up export
However, recently, as the FED's big drop in interest rate to near zero, the US dollar has plunged quite fast. The various Asia countries started to worry about their own currencies rebound against the US dollar as it will hurt the export industries profit margin. To Asia countries, export is their lifeline.

This means that such countries which have been selling the US dollar to preserve the value of their own currency, now have to control the appreciation pace of their own currencies. Thus they have to buy in the US dollar and inject funds into their own markets with their much needed local currency.

Barclays Head of Emerging Asia Research Peter Redward says that we may see Asia central banks starting to buy the US dollar because considering economy growth and inflation prospects, the policy decision maker is most unwilling to see their own country's currency going strong.