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Asian Central Banks Defend Currencies

The foreign exchange reserves of Central Banks throughout Asia have been dwindling. The most plausible explanation is that they are using their reserves to intervene in forex markets on behalf of their respective currencies, many of which have fallen dramatically in 2008. The Korean Won, Thai Baht, and Filipino Peso, to name but a few, have each dropped around 15%. While it may seem futile for Central Banks to continue intervening, it is important to remember that the goal may be to slow -not halt- the decline of the currency. In fact, given the current economic climate, most of them will tolerate currency weakness, in order to boost the competitiveness of their export sectors. Reuters reports:

"When the world slows, the policy focus in Asia would very quickly shift from inflation to growth. This means that monetary and credit policies will ease, and weaker currencies will be welcomed."

Read More: Asia's forex intervention may be a losing game