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Asian currencies climb as G7 calls for appreciation

Asian currencies yesterday climbed after the G7 industrialized nations called for appreciations in the region amid "strong" world growth.

Rising currencies and less reliance on exports may reduce imbalances that threaten the outlook for expansion of the global economy, G7 finance ministers and central bankers said in Washington.

Taiwan and South Korea rely on exports for about 40 percent of economic growth and Singapore almost 80 percent.

Demand for Chinese exports contributed to a US$201.6 billion US deficit with Beijing last year.

"Asian economies are in better shape, so it's more than possible that Asian central banks will allow further gains," said Irene Cheung, a strategist at ABN Amro Bank NV in Singapore.

"It's a positive story for Asian currencies, especially with these kinds of statements," Cheung said.

The New Taiwan dollar gained 0.98 percent to trade at its highest in over two months at NT$31.992 per US dollar yesterday, according to Taipei Forex Inc.

The South Korean won gained as much as 1.2 percent to 937.00 per US dollar, the highest since October 1997, and traded at 939.80 by the 3pm close of onshore trading, according to Seoul Money Brokerage Services Ltd.

The Singapore dollar advanced 0.4 percent to S$1.5911 and touched S$1.5901, the strongest since May 1998.

"In emerging Asia, particularly China, greater flexibility in exchange rates is critical to allow necessary appreciations, as is strengthening domestic demand, easing reliance on export-led growth strategies, and actions to strengthen financial sectors," the G7 finance ministers and central bank governors said in a statement after meeting in Washington last Friday.

The language is a departure from the words the G7 usually uses to address China's exchange rate. Past communiques have referred only to the need for more flexibility without saying whether the yuan should strengthen or weaken.

Regional currency gains may be tempered as authorities in Asia seek to stem fluctuations that go too far, too fast. The yuan traded at 8.0166 per dollar from 8.0170 last Friday.

"China cannot be perceived by their own people to be bowing to foreign pressure on this issue" of strengthening the currency, said Arjuna Mahendran, chief economist and strategist at Credit Suisse in Singapore. "It's an issue of pride."

Malaysia's Deputy Finance Minister Awang Adek Hussin said a day after the G7 statement that stronger Asian currencies alone can't solve the problem of financial and trade imbalances.

"Any drastic appreciation of Asian currencies can lead to severe economic dislocation and trigger global economic and financial instabilities," he said in a statement released at a meeting of the IMF in Washington.
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