The US economy nears the triumph of overcoming a credit glut. With this looming victory for the world’s largest economy, the dollar is poised to gain more strength against a basket of currencies.
Meanwhile in Asia, its biggest economic power, China continued to move in a slow pace as it attempts to shift from maximizing its exports to prioritizing consumer spending.
With these current situations on the world’s economic giants, developing countries, or more commonly known as emerging markets, have been vastly affected.
The currencies of these emerging markets are plummeting. And looking at how events have turned in the global market, things look to get worse for their currencies.
Smashed by the Two Giants
With the continuous slowdown in China’s economy, its Southeast Asian neighbors are suffering the consequences.
The Indonesian rupiah, Malaysian ringgit and Thai baht have been seen sinking as the performance of the mainland became more erratic.
Thailand has almost drained its entire foreign reserves in a very short span of time to peg the US dollar. The country also capitulate hedge funds and its debts piled up, causing the baht to tumble terribly. Thailand has ended dramatically broke as its debts have been in dollars and its currency has further weakened.
Indonesia just recently suffered the worst times of capital outflow in June and July. Additionally, a number of banks have been looted by Chinese people, giving rupiah a nightmare as its value kept the negative trend.
South Africa and Brazil have been also experiencing depreciation of currencies. Their currencies purchasing power further dived, pushing inflation higher and producing asset-liability mismatches.
Economists are claiming that emerging markets will remain under pressure as the US and China both find many ways to escape recent difficult economic times.
What the markets fear now is that the 1997 crash may be in the offing as currency depreciation continue to hound emerging markets.