Selling dollars from country to country to prevent currency depreciation

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The United States and the United Kingdom are suffering from the highest inflation in four decades. The US central bank, the Federal Reserve, is aggressively raising interest rates to curb inflation. But Asian countries are not so aggressive. In terms of policy making, these countries are faced with two dilemmas - on one hand, maintaining the pace of economic growth and on the other hand, tight monetary policy to push inflation.

During this economic crisis, the exchange rate of the US dollar is increasing. The exchange rate of the dollar against the Asian currencies is increasing by leaps and bounds. In this situation, the countries are taking various steps to prevent the devaluation of the currency against the dollar. Asian governments spent $5 trillion in foreign exchange reserves last month, the most since March 2020, to prevent currency falls. News from the Straits Times

US consulting firm Exanti Data monitors global capital flows. According to their data, emerging Asian countries, excluding China, released about $3 trillion for open market sales in September. If Japan is included, this expenditure amounts to five thousand billion dollars. Bangladesh is also constantly selling dollars from reserves.

According to Xanti Data, dollar sales in the region, including Japan, rose to about $8,900 million in the first 9 months of this year. This trend in foreign exchange spending has been marked as the most active since 2008. The agency has calculated this based on information from the central bank and other government authorities.

Meanwhile, the dollar's exchange rate against other currencies rose to record highs. The dollar index against other major currencies rose to its highest level since the 1980s. The rise of the dollar has reduced the value of other currencies held by central banks.

Emerging economies including South Korea, India, Taiwan, Japan have sold the dollar heavily. In addition to Japan's sales of $2 billion in September, South Korea sold nearly $1,700 million. Hong Kong, the Philippines, Taiwan and Thailand also sold significant amounts of dollars last month.

Alex Intra, senior strategist at Exant, said emerging economies' currencies are under pressure due to high policy interest rates. Apart from this, there is uncertainty about how much the interest rate will be increased in the United States. So the devaluation of other currencies against the dollar doesn't seem to be stopping any time soon.

In such a situation, the government of different countries can take further steps. The yen recently fell to its lowest level against the dollar in more than 30 years. The country's government is planning to intervene in the currency market to control the situation.

In the past, Asian governments have often intervened in foreign exchange markets to reduce or control volatility. Efforts have been made to weaken the foreign currency through various measures. But last month's dollar sales were the highest in two and a half years.

Meanwhile, the world's foreign exchange reserves are declining. Alex Intra also highlighted the reason for this. Reserves could also be strained, he said, in part because of the largest redistribution of wealth. But under pressure, central banks are now forced to sell cash.

Global foreign exchange reserves fell by more than 1 trillion or 8.9 percent. This year, the amount of reserves has fallen below 12 trillion dollars.

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