from Follow the Money

Asian central banks back in the fx market

January 12, 2006

Blog Post
Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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Pretty much all of them.   It is 2004 all over again.

From Dow Jones:

Foreign-exchange traders said the central banks of South Korea, Malaysia, Taiwan and Singapore bought U.S. dollars Thursday, pushing down the value of their respective local currencies. None of those central banks publicly comments on their market operations.  ... In China's more-closed foreign-exchange market, the central bank hasn't acted directly to buy or sell currency, but market participants say it has been using its power to set the central rate for daily trading to limit the yuan's moves against the U.S. dollar.

More from Dow Jones:

The moves Thursday prompted speculation that Asian central banks may act together to stem their currencies' gains against the U.S. dollar. But Park Seung, governor of the Bank of Korea, told a press conference Thursday that it isn't considering any joint action with China or Japan. He didn't, however, rule out discussing such coordination in the future.

Traders said the amounts of dollars the central banks purchased Thursday were generally small. And not all countries have taken action: Thailand's central bank intervened last week but hasn't been seen in the market in recent days, while central banks in Japan and Indonesia have apparently held off from intervening so far. ...

The Chinese yuan has gained only 0.05% in 2006 to date, but its move to fresh highs against the U.S. dollar is still seen as significant in the context of the country's tightly-controlled exchange-rate regime.

Note that China has sat out this rally in Asian currencies.  My bet: hot money flows into China have picked up, as speculative pressure on China tends to show up in the central bank's reserves data.  I am most interested in China's December and January Reserve data.

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