Asian Central Banks Dodge Currency Intervention—What’s Their Next Move?
Central banks across Asia are sitting on their hands as currency markets wobble—choosing restraint over reaction. Here’s why that’s either genius or a ticking time bomb.
The Hands-Off Approach
No bailouts, no dramatic rate hikes—just watchful waiting. While traders sweat, policymakers seem content to let markets sort themselves out. For now.
Behind the Scenes: Quiet Calculations
Intervention isn’t cheap, and reserves aren’t infinite. Some whisper this is fiscal prudence; others call it cowardice masked as strategy.
The Cynic’s Take
Maybe they’re just saving their ammo for when crypto truly eats their lunch—because fiat’s looking increasingly like yesterday’s news.
Kalani says reduced interventions will speed up some currency appreciations
Gautam Kalani, Portfolio Manager for BlueBay fixed income, emerging markets, at RBC Global Asset Management, said traders were trying to “game out” which currencies had the most to gain from a period of reduced intervention.
The Korean won and the Malaysian ringgit emerged as obvious candidates since both countries had large trade surpluses. He added that reduced intervention WOULD speed up the appreciation of these currencies.
The central banks of India and Malaysia reduced the size of some of the derivatives positions they used to weaken their currencies. Taiwan also allowed its currency to surge against the dollar in recent weeks and dropped hints it would be comfortable with more if the moves were “orderly.” South Korea’s giant national pension fund reportedly ended its five-month support of the won.
However, while the Taiwan dollar is reportedly also highly tipped to appreciate by strategists, Taiwan’s central bank is still likely to use intervention to keep volatility in check. Most market participants think it will allow the local currency to appreciate further even after hitting multi-year highs. Taiwan’s currency has surged 10% against the greenback this year, making it the region’s best performer. The Korean won is up around 6%, while the Malaysian ringgit is more than 4% higher.
Bank Indonesia intervened today as the rupiah fell to a one-month low, after Middle East tensions hit emerging market currencies. The Philippines’ central bank has also sent mixed messages, calling intervention futile but also saying it might have to do so “more seriously” if the current slide in the peso continued. The People’s Bank of China continued to keep its currency on a tight leash.
U.S. Treasury refrains from labeling any country a currency manipulator
The U.S. Treasury refrained from labeling any country a currency manipulator in its June foreign-exchange report. However, it said China, Japan, South Korea, Taiwan, Singapore, and Vietnam all met two out of three of its criteria.
The Treasury also said it would strengthen its analysis of trading partners’ exchange-rate policies going forward. It issued a warning against attempting to engage in “unfair” currency practices. An official in the department pointed out that the U.S. could, in the future, find evidence that China was manipulating its currency and would make a decision in the fall on whether China manipulated the RMB (renminbi).
Treasury Secretary Scott Bessent said the U.S. had notified its trading partners that macroeconomic policies incentivizing an unbalanced trade relationship with the U.S. would not be tolerated. He added that moving forward, the U.S. would use all tools at its disposal to counter unfair currency practices.
The greenback plummeted against major currencies this year, suffering drops of around 10% against the euro and the Swiss franc. The dollar also reportedly tumbled more than 7% this year, easing pressure on emerging market currencies.
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