Why not Greenback Devaluation to Counter Paper Tigers!

Thailand in 1997, China in 2015!

Markets Bleed and a Global Economic Meltdown Looms!

Asian tigers (their actions often give them the tag, paper tigers) are at it again, dragging global markets down through recklessness and financial indiscipline. They struggle to think beyond currency devaluation as a quick-fix to deal with a slowing economy.

yuan devaluationActions verging on fiscal irresponsibility have been recurring themes in emerging economies, with the world inevitably getting caught in the swirl. The risk of sounding insane, therefore, is not going to stop me from advocating devaluation of the U.S. dollar.

World’s Reserve Currency: From fears of a Grexit to slumping oil prices, every financial woe in every nook is seen strengthening the U.S. dollar, the world’s reserve currency since 1944.

That status came to be questioned when the U.S. dollar started to come under pressure against other global currencies with the US dollar reserves held by other countries growing rapidly, estimated at US$6.5 trillion. China holds the bulk of it assisted by its manufacturing clout which has been showing signs of a decline of late.

asian-crises-1997-2-728A basket of currencies was considered an alternative, but now with every currency other than the greenback taking a hit that is not likely to take root.

Only Weapon: The U.S. should stop letting speculators talk of whether or not they will raise interest rates and when. Instead, they can consider allowing the dollar to weaken if only to stop the developing world from using devaluation as the only weapon in their armoury to arrest slowdowns.

Thailand was behind the collapse of the Asian economy in 1997, with the contagion quickly enveloping the rest of the world, triggering a financial crisis that took two years to recover. The Thai baht took a tumble after the government floated the currency, removing the peg to the US dollar.

2625748-money-background-hundred-dollars-greenbackA few other countries, including South Korea, were then compelled to follow suit and bankruptcy was starting to stare at the Philippines and Indonesia.

Personally that was when I took a deep hit in the market with the only solace being that I was wise enough to decline a very good job offer in Thailand a year earlier – after coming close to accepting it. My faith in Singapore saved me from what could have been a professional misadventure. A visit to Bangkok was all that enabled me to pre-empt that kind of a cataclysm.

Red Giant Takes Bait: This month it emerged that even China, with all its economic clout, could not resist the temptation of falling for the devaluation bait. For three days in a row it allowed the yuan to weaken and the already declining oil prices began sliding further. The result was blood all over the markets globally!

basket-of-world-currencies-242x300-basket-of-currency????Markets in Asia began sinking the day China initiated yuan devaluation and today they went deeper into the red.

It is a matter of relief for me that I am no longer in the markets. I admit this is self-centricity.

But nations resorting to short-term measures to fix an ailing economy ought to be discouraged. Even if that meant the U.S. devaluing the greenback!

G Joslin Vethakumar


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