China grabbed the world’s attention on August 11 when it devalued the yuan. Yet, largely unnoticed by many investors has been the slow depreciation of most other Asian currencies that has been in train for the past two years or so. Currency depreciation will raise the servicing cost of external debt in these Asian economies. Readers who remember the Asian economic crises of 1997-1998 could be excused if they worry about the external debt sustainability implications of the currency depreciations in these economies today.
In our view, there is not an Asian external debt crisis on the horizon, at least not anytime soon. The depreciations that have occurred to date in Asia pale in comparison to the currency freefalls that were registered in the region in the late 1990s, and many countries in Asia have had success in recent years issuing securities in their own currencies to foreigners. Most Asian central banks have ample foreign exchange (FX) reserves to offset some downward selling pressure if their currencies should go into complete freefall. Although economic growth in the region could be disappointing over the next two years, we do not believe that a collapse in Asian economic activity due to an external debt crisis is imminent.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.