The Korean economy can't bear it and is harvested by the Federal Reserve. Is Asi
On May 8th, multiple media outlets including the Global Times published financial data on the South Korean won's exchange rate against the US dollar for the recent period. According to the data, since the beginning of 2024, the won has depreciated by a cumulative 5.5% against the US dollar.
Despite the fact that in the current wave of interest rate hikes by the Federal Reserve, the currencies of various Asian countries have shown varying degrees of depreciation against the US dollar, the won has still been rated as the worst-performing Asian sovereign currency.
Many financial experts estimate that this round of impact will bring significant losses to the majority of Asian countries. The import and export trade of Asian countries will also be greatly affected due to fluctuations in their currencies' exchange rates against the US dollar.
As the financial defense war across Asia is about to commence, no Asian country can completely stand aloof. In this context, the choices made by each country determine their future destinies.
So, how does the United States target the sovereign currencies of Asian countries? How have Asian countries performed in this round of financial warfare? And how will this battle to defend Asian sovereign currencies end?
Let's delve into these questions slowly.
The Federal Reserve Drains the WorldWhenever the U.S. government encounters a fiscal crisis, the Federal Reserve resorts to the tool of raising interest rates to frenetically reap liquid funds from markets around the world. The impact of this round of Federal Reserve rate hikes is particularly perilous for other countries.
Due to the effects of the "global COVID-19 pandemic," investment markets in countries including the United States are not very prosperous. Precisely at this time, the United States, disregarding other nations around the world, uses the method of raising interest rates to attract all liquid funds to its own country.
As a result, the vitality of the U.S. economy and the value of the dollar begin to rise steadily. However, the economies of other countries in the world are like stagnant water, always difficult to inspire hope.
Against this backdrop, an increasing number of investors will choose to deposit their money in banks within the United States to gain high-interest returns. This will create a vicious cycle.
The exchange rate of the U.S. dollar against the currencies of other countries rises, and the purchasing power of the dollar worldwide will correspondingly strengthen. The cost for the United States to import products from other countries will also decrease.
In this round of the Federal Reserve's reaping wave, the Japanese yen and the South Korean won were originally expected by Asian countries. This is because these two countries have strong economic power and are also allies of the United States. When necessary, the Federal Reserve will step in to support them.
But this time, when the Federal Reserve was reaping from the world, it clearly did not consider the bonds of alliance. As the Federal Reserve raised interest rates, the exchange rates of the yen and the won against the U.S. dollar began to plummet.
The stock markets of these two countries are also showing a scene of widespread desolation. Domestic import product prices have begun to rise exponentially, and a large number of people have to cut back on expenses to barely make ends meet.As of now, the exchange rate of the Korean won against the US dollar has already broken through 1300. The exchange rate of the Japanese yen against the US dollar has also surpassed the 155 mark. This indicates that the economies of both countries have reached an extremely perilous moment.
At such a juncture, even if the governments of South Korea and Japan are as close as ever with the United States, they cannot turn a blind eye to their domestic economic predicaments. Because if this continues, the economies of South Korea and Japan will collapse completely due to the Federal Reserve's harvesting.
Nations are taking self-rescue measures.
In fact, as early as April, Japan, South Korea, and other Asian countries had already introduced measures to save their markets. Japan, at the beginning of this month, directly injected a large amount of funds into the currency market in an attempt to stabilize it.
The actions of these countries, without mentioning an increase in the exchange rate of their currencies against the US dollar, at least prevent the exchange rate from falling further. Otherwise, once the domestic consumer market is on the brink of collapse, the consequences would be catastrophic for any government.
According to reports from the Economic Daily, the government of South Korea's President Yoon Suk-yeol had once injected a large amount of funds into the currency market in mid-April in an attempt to halt the depreciation of the won against the US dollar.However, subsequently, the exchange rate of the South Korean won against the US dollar still soared past the significant threshold of 1400. Faced with the unfathomable financial market, the government of Yoon Suk-yeol had no other choice. The South Korean finance department could only continue to inject funds in an attempt to salvage the national currency.
The dizzying series of maneuvers by the South Korean government did manage to restore some of the investors' confidence. It took more than half a month before the won-to-dollar exchange rate began to slowly rise, but it still lingered around the 1300 mark.
In comparison, the Japanese government's approach appeared much more generous. According to reports from several Japanese media outlets, the Japanese government has cumulatively injected 900 billion yen into the currency market to stabilize the yen's exchange rate.
Although the funds injected into the market during this process still showed signs of evaporation, at least in the end, the overall exchange rate of the yen against the US dollar maintained stability and stopped falling. For both South Korea and Japan, they have managed to defend the bottom line of their national currencies.
However, the fact that South Korea and Japan can catch their breath in this currency war does not mean that other countries can rest easy in anticipation of the Federal Reserve's next moves. Currently, the situation for Asian countries such as Vietnam, Thailand, and Indonesia remains quite severe.
At present, the exchange rate of the Vietnamese dong against the US dollar has approached the level of 24,500. A large number of Vietnamese investors have been almost completely bled dry by the United States under these circumstances.Moreover, the relative devaluation of the Vietnamese dong against the US dollar has dealt a heavy blow to Vietnam's export trade. The ordinary workers in Vietnam have toiled to produce industrial and agricultural goods, but ultimately their income is significantly reduced compared to the same period in previous years.
The same situation is also seen in Indonesia and Thailand. Faced with such a dire predicament, these countries seem to be at a loss. This is because they simply do not possess the strong industrial capabilities like the United States and China to ensure the supply of their domestic markets.
Furthermore, these countries also lack the vast markets necessary to absorb their own agricultural and industrial products. Against the backdrop of the Federal Reserve's interest rate hikes and the continuous devaluation of Asian currencies, the foreign trade industries of these countries are essentially going through a tough winter.