Asian countries spend 50 billion USD to save local currencies

Asian governments spent about $50 billion in foreign exchange reserves last month to protect their currencies as the dollar appreciates.

Exante Data, a company that tracks global capital flows, estimates that emerging Asian countries (excluding China) spent nearly $30 billion in the spot market in September alone. If you include $20 billion, USD of Japan, this figure will increase to 50 billion USD.

The amount of USD sold in this area in the first 9 months of the year was approximately 89 billion USD, including Japan. According to Exante, this is the most active period of foreign currency selling since 2008. The company estimates based on data from central banks and government agencies, then adjusts for exchange rates.

According to the Bloomberg Dollar Spot index - measuring the strength of the greenback against a basket of major currencies in the world, the USD is currently the strongest in history, after a series of interest rate hikes by the US Federal Reserve (Fed). A stronger US dollar has reduced the value of other currencies in the central bank's reserves.

Although the recent sale of USD by economies such as Korea, India, Taiwan, and Japan is almost public, the activities of many other countries are only recorded through the report of the central bank. In addition to Japan selling $20 billion in September, South Korea also sold about $17 billion, according to Exante. Hong Kong, Philippines, Taiwan, Thailand also net sold USD in September.

"Their local currency is under pressure as interest rates rise everywhere," said Alex Etra, senior strategist at Exante.

The intervention may not be over, when the Japanese yen yesterday fell to a 30-year low against the dollar. This situation raises the possibility of Japanese authorities to intervene after the move to sell USD last month.

Asian governments often intervene in the foreign exchange market to control volatility. However, the scale of intervention last month was the largest since March 2020, when the pandemic spread globally.

Global foreign exchange reserves also fell. This year, the world reserve block decreased by more than 1 trillion USD, or 8.9%, to less than 12 trillion USD. This is the biggest drop since Bloomberg started tracking this metric in 2003.