• Home
  • About RSIS
    • Introduction
    • Building the Foundations
    • Welcome Message
    • Board of Governors
    • Staff Profiles
      • Executive Deputy Chairman’s Office
      • Dean’s Office
      • Management
      • Distinguished Fellows
      • Faculty and Research
      • Associate Research Fellows, Senior Analysts and Research Analysts
      • Visiting Fellows
      • Adjunct Fellows
      • Administrative Staff
    • Honours and Awards for RSIS Staff and Students
    • RSIS Endowment Fund
    • Endowed Professorships
    • Career Opportunities
    • Getting to RSIS
  • Research
    • Research Centres
      • Centre for Multilateralism Studies (CMS)
      • Centre for Non-Traditional Security Studies (NTS Centre)
      • Centre of Excellence for National Security (CENS)
      • Institute of Defence and Strategic Studies (IDSS)
      • International Centre for Political Violence and Terrorism Research (ICPVTR)
    • Research Programmes
      • National Security Studies Programme (NSSP)
      • Studies in Inter-Religious Relations in Plural Societies (SRP) Programme
    • Future Issues and Technology Cluster
    • [email protected] Newsletter
    • Other Research
      • Science and Technology Studies Programme (STSP) (2017-2020)
  • Graduate Education
    • Graduate Programmes Office
    • Overview
    • MSc (Asian Studies)
    • MSc (International Political Economy)
    • MSc (International Relations)
    • MSc (Strategic Studies)
    • NTU-Warwick Double Masters Programme
    • PhD Programme
    • Exchange Partners and Programmes
    • How to Apply
    • Financial Assistance
    • Meet the Admissions Team: Information Sessions and other events
    • RSIS Alumni
  • Alumni & Networks
    • Alumni
    • Asia-Pacific Programme for Senior Military Officers (APPSMO)
    • Asia-Pacific Programme for Senior National Security Officers (APPSNO)
    • International Strategy Forum-Asia (ISF-Asia)
    • SRP Executive Programme
    • Terrorism Analyst Training Course (TATC)
  • Publications
    • RSIS Publications
      • Annual Reviews
      • Books
      • Bulletins and Newsletters
      • Commentaries
      • Counter Terrorist Trends and Analyses
      • Commemorative / Event Reports
      • IDSS Paper
      • Interreligious Relations
      • Monographs
      • NTS Insight
      • Policy Reports
      • Working Papers
      • RSIS Publications for the Year
    • Glossary of Abbreviations
    • External Publications
      • Authored Books
      • Journal Articles
      • Edited Books
      • Chapters in Edited Books
      • Policy Reports
      • Working Papers
      • Op-Eds
      • External Publications for the Year
    • Policy-relevant Articles Given RSIS Award
  • Media
    • Great Powers
    • Sustainable Security
    • Other Resource Pages
    • Media Highlights
    • News Releases
    • Speeches
    • Vidcast Channel
    • Audio/Video Forums
  • Events
  • Giving
  • Contact Us
Facebook
Twitter
YouTube
RSISVideoCast RSISVideoCast rsis.sg
Linkedin
instagram instagram rsis.sg
RSS
  • Home
  • About RSIS
      • Introduction
      • Building the Foundations
      • Welcome Message
      • Board of Governors
      • Staff Profiles
        • Executive Deputy Chairman’s Office
        • Dean’s Office
        • Management
        • Distinguished Fellows
        • Faculty and Research
        • Associate Research Fellows, Senior Analysts and Research Analysts
        • Visiting Fellows
        • Adjunct Fellows
        • Administrative Staff
      • Honours and Awards for RSIS Staff and Students
      • RSIS Endowment Fund
      • Endowed Professorships
      • Career Opportunities
      • Getting to RSIS
  • Research
      • Research Centres
        • Centre for Multilateralism Studies (CMS)
        • Centre for Non-Traditional Security Studies (NTS Centre)
        • Centre of Excellence for National Security (CENS)
        • Institute of Defence and Strategic Studies (IDSS)
        • International Centre for Political Violence and Terrorism Research (ICPVTR)
      • Research Programmes
        • National Security Studies Programme (NSSP)
        • Studies in Inter-Religious Relations in Plural Societies (SRP) Programme
      • Future Issues and Technology Cluster
      • [email protected] Newsletter
      • Other Research
        • Science and Technology Studies Programme (STSP) (2017-2020)
  • Graduate Education
      • Graduate Programmes Office
      • Overview
      • MSc (Asian Studies)
      • MSc (International Political Economy)
      • MSc (International Relations)
      • MSc (Strategic Studies)
      • NTU-Warwick Double Masters Programme
      • PhD Programme
      • Exchange Partners and Programmes
      • How to Apply
      • Financial Assistance
      • Meet the Admissions Team: Information Sessions and other events
      • RSIS Alumni
  • Alumni & Networks
      • Alumni
      • Asia-Pacific Programme for Senior Military Officers (APPSMO)
      • Asia-Pacific Programme for Senior National Security Officers (APPSNO)
      • International Strategy Forum-Asia (ISF-Asia)
      • SRP Executive Programme
      • Terrorism Analyst Training Course (TATC)
  • Publications
      • RSIS Publications
        • Annual Reviews
        • Books
        • Bulletins and Newsletters
        • Commentaries
        • Counter Terrorist Trends and Analyses
        • Commemorative / Event Reports
        • IDSS Paper
        • Interreligious Relations
        • Monographs
        • NTS Insight
        • Policy Reports
        • Working Papers
        • RSIS Publications for the Year
      • Glossary of Abbreviations
      • External Publications
        • Authored Books
        • Journal Articles
        • Edited Books
        • Chapters in Edited Books
        • Policy Reports
        • Working Papers
        • Op-Eds
        • External Publications for the Year
      • Policy-relevant Articles Given RSIS Award
  • Media
      • Great Powers
      • Sustainable Security
      • Other Resource Pages
      • Media Highlights
      • News Releases
      • Speeches
      • Vidcast Channel
      • Audio/Video Forums
  • Events
  • Giving
  • Contact Us
  • instagram instagram rsis.sg
Connect

Getting to RSIS

Map

Address

Nanyang Technological University
Block S4, Level B3,
50 Nanyang Avenue,
Singapore 639798

View location on Google maps Click here for directions to RSIS

Get in Touch

    Connect with Us

      rsis.ntu
      rsis_ntu
      rsisntu
    RSISVideoCast RSISVideoCast rsisvideocast
      school/rsis-ntu
    instagram instagram rsis.sg
      RSS
    Subscribe to RSIS Publications
    Subscribe to RSIS Events

    RSIS Intranet

    S. Rajaratnam School of International Studies Think Tank and Graduate School Ponder The Improbable Since 1966
    Nanyang Technological University Nanyang Technological University

    Skip to content

     
    • RSIS
    • Publication
    • RSIS Publications
    • Currency Crisis: The Next One in ASEAN?
    • Annual Reviews
    • Books
    • Bulletins and Newsletters
    • Commentaries
    • Counter Terrorist Trends and Analyses
    • Commemorative / Event Reports
    • IDSS Paper
    • Interreligious Relations
    • Monographs
    • NTS Insight
    • Policy Reports
    • Working Papers
    • RSIS Publications for the Year

    CO18170 | Currency Crisis: The Next One in ASEAN?
    Christopher H. Lim, Tan Ming Hui

    16 October 2018

    download pdf
    RSIS Commentary is a platform to provide timely and, where appropriate, policy-relevant commentary and analysis of topical and contemporary issues. The authors’ views are their own and do not represent the official position of the S. Rajaratnam School of International Studies (RSIS), NTU. These commentaries may be reproduced with prior permission from RSIS and due credit to the author(s) and RSIS. Please email to Editor RSIS Commentary at [email protected].

    Synopsis

    In today’s volatile, uncertain and complex global economic climate, currency crises could be triggered again in ASEAN. The impact of such currency turmoil would likely be more severe than the 1997-98 Asian Financial Crisis.

    Commentary

    THE RUMBLINGS of a potential currency crisis are being heard in emerging markets and they are getting louder. In May 2018, Argentina’s Central Bank raised interest rates to 40% to protect its peso but this did not help much. Argentina had to go the International Monetary Fund (IMF) for a US$50 billion credit line.

    In August 2018, Turkey stated that more than 35% of the value of its lira had vanished against the US dollar since the beginning of 2018. In India, pressure also built up against its currency which slipped to a record low, at 70.08 rupees to the  dollar. Will these trends spark off a currency contagion in the emerging markets? During the 2007-08 global financial crisis, ASEAN was spared a full-blown impact. Will the region be immune the next time round?

    Will History Repeat Itself?

    ASEAN is the fifth largest economy in the world after the United States, the European Union, China and Japan. Average GDP growth in ASEAN was above 5% for the last few years. The IMF and World Bank have predicted this  growth will continue into 2019 and 2020. ASEAN is therefore seen as a region of opportunities, attracting capital inflows.

    Presently, media attention is fixated on world leaders engaging in controversial political and trade spats. At the same time, scholars have been scrutinising the financial crises of past decades. The US Federal Reserve, European Central Bank and Bank of Japan had issued combined stimulus of more than $13 trillion since 2008.

    On Wall Street in 2017, borrowing by governments and corporate entities reached $6.8 trillion. Global total debt hit $247 trillion by the first quarter of 2018. Such unprecedented numbers and the associated risks need to be understood and managed.

    An important barometer is Nomura’s early warning system, known as the Damocles Index. It has called to attention the risk of exchange rate crises for Argentina, Egypt, Pakistan, South Africa, Sri Lanka, Turkey and Ukraine. Apart from South Africa, the other six countries are already in or facing a currency crisis and seeking assistance from the IMF.

    In April 2018, for the first time since 2005, the Hong Kong Monetary Authority (HKMA) bought local currency at a total of HK$3.26 billion ($415 million), after the exchange rate dropped to the weak end of its permitted range, to defend its US dollar-pegged system. In August 2018, HKMA pumped in another HK$16.4 billion to soften the withdrawal of banking liquidity due to rising interest rates elsewhere.

    What About ASEAN Currencies?

    According to the Damocles Index, none of the ASEAN member states is facing immediate risk of an exchange rate crisis. However, the Indonesian rupiah has fallen to its lowest level in more than 20 years. This year alone, the  central bank has depleted almost 10% of its foreign reserves to support the rupiah.

    A key challenge faced by Indonesia is its external debt, standing at 34% of GDP, one of the highest in Asia. Of late, Indonesia has also encountered a number of natural disasters. Politically, Indonesia has to handle  growing demands and pressures from different interest groups, particularly on issues relating to concessions for investors in sectors such oil, gas and mining.

    All these factors contributed to a weakening of sentiments which may have exacerbated unfavourable perceptions of the rupiah.

    For Malaysia and Singapore, there are two challenges. First, funds are leaving the emerging economies, including ASEAN, as the policy of reversing quantitative easing in the developed economies is taking place and interest rates go up. Second, the worsening US-China trade friction, dubbed by the media as “trade war”, has affected market sentiments given that the economies of Malaysia and Singapore are highly dependent on trade.

    Currency “Stroke” Facing ASEAN?

    Given the above, it is possible that certain ASEAN member states and ASEAN as a whole might face the danger of a “stroke” in exchange rates. A stroke is essentially a brain attack, which can occur to anyone at any time, when blood flow to an area of the brain is cut off.

    At times, it may well be a transient ischemic attack which are warning signs preceding a stroke. While 80% of strokes can be prevented, treatment must be administered within the critical three hours of having a stroke.

    Just like human health, ASEAN economies should watch out for any symptom and take preventive actions to address a possible “currency crisis stroke”. There is a critical time window in addressing ailing economies. Once past, a meltdown is inevitable. A currency crisis stroke is contagious, as seen during the 1997-98 and 2007-08 financial crises.

    Threats to Southeast Asia

    Since 1997-98, there are two distinct developments in Southeast Asia. First, ASEAN has deepened economic integration among its member states, and with its key trading partners, particularly China. Second, the global and regional socio-political landscape has undergone a transformation. Security and trade challenges have increased, not least by extremism and unilateral moves motivated by nativism, nationalism and religion.

    ISIS may be defeated in Middle East battlefields but its foreign fighters are returning home, including to Southeast Asia. A currency crisis or other economic grievances may well drive disaffected populations to support the returning extremists or other radicalised elements in the respective societies.

    Poor socio-economic conditions will fertilise discontent against the incumbent governments. Like dormant cancer cells, a minimal signal change in the network of bad cells can lead to metastasis.

    At the same time, Southeast Asia will be affected by a prolonged US-China trade war because of the inter-connected production, supply and value chains between the economies of ASEAN, China, the US and the European Union. This could spell trouble for those with weaker currencies, thereby triggering and sparking off possible crises and global contagion.

    In short, if there are no timely and substantive measures by ASEAN and its key trading partners in the Regional Comprehensive Economic Partnership (RCEP) area to pre-empt the consequences of weakening currencies, a potentially disastrous economic downturn in the region is not far-fetched.

    In addition, ASEAN is pushing for the RCEP to open up markets, boost trade and possibly stabilise the fluid situation. A coordinated multilateral approach is needed to avoid a repeat of the currency crises of the earlier years.

    About the Authors

    Christopher H. Lim is a Senior Fellow and Tan Ming Hui is an Associate Research Fellow in the Office of the Executive Deputy Chairman, S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore This is part of a series on the Unintended Consequences of Quantitive Easing.

    Categories: Commentaries / Country and Region Studies / International Political Economy / Regionalism and Multilateralism / East Asia and Asia Pacific / Southeast Asia and ASEAN

    Last updated on 18/10/2018

    comments powered by Disqus
    RSIS Commentary is a platform to provide timely and, where appropriate, policy-relevant commentary and analysis of topical and contemporary issues. The authors’ views are their own and do not represent the official position of the S. Rajaratnam School of International Studies (RSIS), NTU. These commentaries may be reproduced with prior permission from RSIS and due credit to the author(s) and RSIS. Please email to Editor RSIS Commentary at [email protected].

    Synopsis

    In today’s volatile, uncertain and complex global economic climate, currency crises could be triggered again in ASEAN. The impact of such currency turmoil would likely be more severe than the 1997-98 Asian Financial Crisis.

    Commentary

    THE RUMBLINGS of a potential currency crisis are being heard in emerging markets and they are getting louder. In May 2018, Argentina’s Central Bank raised interest rates to 40% to protect its peso but this did not help much. Argentina had to go the International Monetary Fund (IMF) for a US$50 billion credit line.

    In August 2018, Turkey stated that more than 35% of the value of its lira had vanished against the US dollar since the beginning of 2018. In India, pressure also built up against its currency which slipped to a record low, at 70.08 rupees to the  dollar. Will these trends spark off a currency contagion in the emerging markets? During the 2007-08 global financial crisis, ASEAN was spared a full-blown impact. Will the region be immune the next time round?

    Will History Repeat Itself?

    ASEAN is the fifth largest economy in the world after the United States, the European Union, China and Japan. Average GDP growth in ASEAN was above 5% for the last few years. The IMF and World Bank have predicted this  growth will continue into 2019 and 2020. ASEAN is therefore seen as a region of opportunities, attracting capital inflows.

    Presently, media attention is fixated on world leaders engaging in controversial political and trade spats. At the same time, scholars have been scrutinising the financial crises of past decades. The US Federal Reserve, European Central Bank and Bank of Japan had issued combined stimulus of more than $13 trillion since 2008.

    On Wall Street in 2017, borrowing by governments and corporate entities reached $6.8 trillion. Global total debt hit $247 trillion by the first quarter of 2018. Such unprecedented numbers and the associated risks need to be understood and managed.

    An important barometer is Nomura’s early warning system, known as the Damocles Index. It has called to attention the risk of exchange rate crises for Argentina, Egypt, Pakistan, South Africa, Sri Lanka, Turkey and Ukraine. Apart from South Africa, the other six countries are already in or facing a currency crisis and seeking assistance from the IMF.

    In April 2018, for the first time since 2005, the Hong Kong Monetary Authority (HKMA) bought local currency at a total of HK$3.26 billion ($415 million), after the exchange rate dropped to the weak end of its permitted range, to defend its US dollar-pegged system. In August 2018, HKMA pumped in another HK$16.4 billion to soften the withdrawal of banking liquidity due to rising interest rates elsewhere.

    What About ASEAN Currencies?

    According to the Damocles Index, none of the ASEAN member states is facing immediate risk of an exchange rate crisis. However, the Indonesian rupiah has fallen to its lowest level in more than 20 years. This year alone, the  central bank has depleted almost 10% of its foreign reserves to support the rupiah.

    A key challenge faced by Indonesia is its external debt, standing at 34% of GDP, one of the highest in Asia. Of late, Indonesia has also encountered a number of natural disasters. Politically, Indonesia has to handle  growing demands and pressures from different interest groups, particularly on issues relating to concessions for investors in sectors such oil, gas and mining.

    All these factors contributed to a weakening of sentiments which may have exacerbated unfavourable perceptions of the rupiah.

    For Malaysia and Singapore, there are two challenges. First, funds are leaving the emerging economies, including ASEAN, as the policy of reversing quantitative easing in the developed economies is taking place and interest rates go up. Second, the worsening US-China trade friction, dubbed by the media as “trade war”, has affected market sentiments given that the economies of Malaysia and Singapore are highly dependent on trade.

    Currency “Stroke” Facing ASEAN?

    Given the above, it is possible that certain ASEAN member states and ASEAN as a whole might face the danger of a “stroke” in exchange rates. A stroke is essentially a brain attack, which can occur to anyone at any time, when blood flow to an area of the brain is cut off.

    At times, it may well be a transient ischemic attack which are warning signs preceding a stroke. While 80% of strokes can be prevented, treatment must be administered within the critical three hours of having a stroke.

    Just like human health, ASEAN economies should watch out for any symptom and take preventive actions to address a possible “currency crisis stroke”. There is a critical time window in addressing ailing economies. Once past, a meltdown is inevitable. A currency crisis stroke is contagious, as seen during the 1997-98 and 2007-08 financial crises.

    Threats to Southeast Asia

    Since 1997-98, there are two distinct developments in Southeast Asia. First, ASEAN has deepened economic integration among its member states, and with its key trading partners, particularly China. Second, the global and regional socio-political landscape has undergone a transformation. Security and trade challenges have increased, not least by extremism and unilateral moves motivated by nativism, nationalism and religion.

    ISIS may be defeated in Middle East battlefields but its foreign fighters are returning home, including to Southeast Asia. A currency crisis or other economic grievances may well drive disaffected populations to support the returning extremists or other radicalised elements in the respective societies.

    Poor socio-economic conditions will fertilise discontent against the incumbent governments. Like dormant cancer cells, a minimal signal change in the network of bad cells can lead to metastasis.

    At the same time, Southeast Asia will be affected by a prolonged US-China trade war because of the inter-connected production, supply and value chains between the economies of ASEAN, China, the US and the European Union. This could spell trouble for those with weaker currencies, thereby triggering and sparking off possible crises and global contagion.

    In short, if there are no timely and substantive measures by ASEAN and its key trading partners in the Regional Comprehensive Economic Partnership (RCEP) area to pre-empt the consequences of weakening currencies, a potentially disastrous economic downturn in the region is not far-fetched.

    In addition, ASEAN is pushing for the RCEP to open up markets, boost trade and possibly stabilise the fluid situation. A coordinated multilateral approach is needed to avoid a repeat of the currency crises of the earlier years.

    About the Authors

    Christopher H. Lim is a Senior Fellow and Tan Ming Hui is an Associate Research Fellow in the Office of the Executive Deputy Chairman, S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore This is part of a series on the Unintended Consequences of Quantitive Easing.

    Categories: Commentaries / Country and Region Studies / International Political Economy / Regionalism and Multilateralism

    Last updated on 18/10/2018

    Back to top

    Terms of Use | Privacy Statement
    Copyright © S. Rajaratnam School of International Studies. All rights reserved.
    This site uses cookies to offer you a better browsing experience. By continuing, you are agreeing to the use of cookies on your device as described in our privacy policy. Learn more
    OK
    Latest Book
    Currency Crisis: The Next One in ASEAN?

    Synopsis

    In today’s volatile, uncertain and complex global economic climate, currency crises could be triggered again in ASEAN. The impact ...
    more info