China has its currency pegged to the dollar, so when the dollar weakens, the yuan weakens, too, which means that other Asian economies are stuck with a stronger currency, and thus less competitive exports.
For countries like Thailand, Malaysia, and Singapore, there’s not much to be done about this, so long as they want to preserve the free-floating nature of their currencies.
WSJ looks at the situation, which has prompted these countries to add to their dollar reserves, in hopes of staunching their rise, at least a little:
Since its March high, the dollar — and by extension the yuan — has fallen 24.3% against the South Korean won, 10.4% against the Singapore dollar, 7.7% against the Thai baht, and 9.3% against the Malaysian ringgit.
The won, the Singapore dollar, the baht and the ringgit have marched higher regardless of the billions of dollars spent by Asian countries buying U.S. dollars. South Korea added $8.8 billion to its reserves in September, which are expected to reach a new high in the next month or two. Thailand added $5.3 billion in September and Taiwan added $6.8 billion, building their reserves to all-time highs.
This is more evidence that the world is simply trapped by US monetary policy, and it probably can’t get untrapped until the dollar loses its position of prominence. Even though it may make sense to tighten, Asian economies are forced to print currency and buy Dollar. It’s the same in Europe. There’s no way the UK can even think about raising rates, were their economy to recover. Everyone wants to replace the dollar, eventually, but in the meantime, nobody wants it go slip against them.
Chart via WSJ: