The news that the EU will demand appreciation of Asian currencies has had an immediate impact. On Monday, the exchange rate from the yen to the euro and yen to the US dollar immediately began to drop on a large scale, while the rate from dollar to yen hit a five-year peak of US$1 for ¥102, prompting Asian currencies, including the South Korean won and Thai baht, but excepting the Chinese yuan and Hong Kong dollar), to uniformly climb. The NT also appreciated by 0.0215 percent, reaching NT$31.804.
Officals at the central bank emphasized that the recent rise in New Taiwan dollar had primarily international causes. The level of appreciation will respect the market mechanism. While the NT dollar has already been rising in comparison with the currencies of neighboring countries, its exchange rate is comparatively stable. Spectators predict that so long as the yen continues to climb, the NT dollar will continue to rise as well. In fact, appreciation by more than NT$0.01 in a single day may become the norm, they say.
Why is the European Central Bank (ECB) so adamant about pushing for a rise in Asian currencies? After the euro's exchange rate to the US dollar began to climb, the ECB has been afraid of a rise in the euro, believing that it will impact the competitiveness of the EU. As early as July 2003, when the euro's exchange rate to the US had climbed up to US$1.13, German Chancellor Gerhard Schroeder demanded that the the exchange rate of the euro should be kept low.
He said that appreciation of the euro will devastate German exporters, causing the German economy to continue in a slump. On the other hand, US trade deficits have continued to reach record highs each year. Before 1995, the US trade deficit was less than US$200 billion. By last year, the figure for the first 11 months reached US$561.3 billion.
For the month of November alone, the figure was US$60.3 billion. The figure for the entire year was expected to reach the astronomical figure of US$600 billion.
The primary ground upon which the ECB wants appreciation for Asian currencies is that after the euro's exchange rate to the US dollar hit rock bottom in 2002, it had experienced a major come back, ascending more than 40 percent last year (if the comparison is made with the rate of 1.3092 at the close of the stock exchange on Jan. 17, then the rise reached 52 percent).
When the initial exchange rate of the euro at the time when the currency initially came into use on December of 2002 -- one euro for US$1.1667 -- is compared with the rate at the end of last year -- US$1.3556 -- the euro's exchange rate to the US dollar climbed up by 16.19 percent.
During the same period, the yen rose by 21.66 percent, while the South Korean won rose 26.13 percent, based on the average exchange rate for the year 1998. This indicates that obviously the euro is not the only currency with an increasingly high exchange rate against the US Dollar. The rise in the yen and the won were much higher than that of the euro. It is very difficult to blame Asian currencies for the economic slump in Europe and the US trade deficit.
The import surplus of the US is a serious problem. So, just what exactly is the root of the problem? Leaving aside the problems with the US, the primary cause should be the exchange rate of the Chinese yuan and Hong Kong dollar -- both Asian currencies.