APPRECIATION OF ASIAN CURRENCIES : IS IT ASIAN CRISIS IN REVERSE ?

 Global currency market  witnessed voltatility in recent days due to first time sharp surge in the value of Asian currencies putting severe pressure on US dollar. The  Taiwan dollar performed particularly  well against US dollar fuelling speculation that the appreciation may ultimately  even lead to evolving a regional strategy in order  to gain trade concessions from the USA. Apart from Taiwan dollar the Chinese yuan,Malaysian Ringitt,Japanese Yen,Australian dollar  all have strengthened, leading to a major breakthrough through shifts  in  both  capital flows and investor preference. The rise in currencies recorded for the last one month has indicated that Chinese  currency appreciated 1.25%,Japan 3.24,Korea 4.94, Taiwan 8.24,India 1.63,Thailand 5.6,Indonesia 1.68,Philippines 3.66,Singapore 4.55,and Vietnam -0.65.Taiwan has been experiencing piling up of US dollar through its trade surplus primarily through export of  semiconductor chips to US. Taiwan dollar is  historically popular for its minimum voltatility  against US dollar  which  appreciated by approximately 9%  in recent week making it largest gain since 1980.Curreny value appreciated in other countries showed Thailand 5.6% and Singapore 4.94 %.Vietnamese  currency alone witnessed a decline of -0.65% during this period. It has been observed that global markets have become highly volatile due to the perceived inconsistencies in US President Donald Trump's trade and tariff policies. Currently Asian markets  remained  more or less steady with the MSCI Asia Pacific Index excluding Japan rising 0.2% and  Chinese and Hong Kong Stock markets achieving moderate gaitns.This has led to at least a temporary erosion of US dollar dominance  and Asian currencies gradually emerging as a global force to be reckoned with in global dynamics.The currency rally startng from Taiwan dollar gradually spread to other countries including China. Malaysia,Thailand, Singapore, South Korea with upward shift iin currency values and  Asian currencies signalling potential  risks for the US dollar changing the global economic dynamics,which prompted many analysts to recall the experience of 1997Asian currency crisis and termed present condition  as  'Asian crisis in reverse"

How 1997 Asian Financial Crisis Occurred 

The 1997 South East Asian financial crisis was triggered by sharp decline in the value of of Thai currency  baht in July 1997 following it's inability to maintain the pegged exchange rate, due to the economic bubble fuelled by speculative capital flows or "hot Money "denoting  flow of funds and capital. Similarl situation also  did  persist both  in Malaysia and Indonesia. Before the crisis Thailand Baht was trading for 26 to US$ which depreciated to 53 Baht by January 1998.On the otherhand South Korean Won depreciated  from 900 to 1695 per US$ by the end of 1997.Similarly the GDP of heavily affected countries became negative like that for Indonesia from 4.7% in 1997 to - 13.1 in 1998,South Korea 6.3 to - 4.9%,Malaysia 7.3 to - 7.4% etc.The analysts observed that the crisis occurred when Thai baht was devalued after severe market pressure that  led to devaluation of other Asian currencies,stock market collapse,weak financial  andì banking systems, structural weak nesses and policy distortions.Rapid credit growth,excessive borrowing particularly external borrowings, excessive pressure to foreign exchange risk in both financial and corporate sectors, capital flight and devaluation of the Yen were listed as other contributory factors for the crisis. 

The macro economic problems associated with South East Asian crisis were  rising Current Account Deficit, high levels of foreign debt,budget deficit, high volatility in capital inflows and outflows etc. Inorder to mitigate the crisis both IMF and world Bank provided  support of $118 billion into Thailand, Indonesia and South Korea so as to bail out their economies from the crisis.  The  impact of the crisis were relativel less in the case of countries who have restructured their economies by effectively strengthening  weak financial systems,lowering debt levels and liberalising trade investment and financial flows. The crisis occurred because of multiple factors including monetary,financial, and industrial and Government policies to promote export led growth, subsidies currency pegs and exchange rate policies. After the crisis affected countries resorted to liberalisation measures like floating exchange rate system  and open capital accounts,structural reforms and adjustments in monetary fiscal,trade and other policies in order to restore confidence,minimize output losses and avoid external debt  default. 

.CONTRAST BETWEEN  1997 AND 2025.

While 1997 Asian currency crisis was triggered by  basic imbalances in the economy and market overreaction,  2025 currency appreciation was driven by positive economic trends with strong economic growth. In 1997 Thailand Baht was the first to collapse whereas in 2025 Taiwan dollar recorded  largest appreciation among Asian currencies. Except Vietnam and few countries many Asian currencies are likely to appreciate against US dollar due to factors like robust economic growth, trade surplus and potentially lower interest rates .On the contrary 1997 crisis occurred due to fundamental imbalances and market overreaction leading to  huge capital exodus , speculation  and currency depreciation .One general characteristics of these two scenarios namely depreciation of currencies in mid 1997 and appreciation of currencies in 2025 were that they are  synchronized in South East Asian countries. Since most  of them are export led economies largely dependent on exports, continous appreciation of their respective currencies may reduce their export competitiveness necessitating Central bank intervention in respective nations.