Challenging charms of competitive currencies

SHENYANG, China: In the last article, I started discussing the relatively weak exchange rates of a number of national currencies in the region against some of the major international currencies and laid out some of the criteria for qualifying as the latter. Indeed, sluggish local currencies in emerging markets should theoretically stimulate exports because foreign businesses can buy more products from local merchants with the same amount of foreign currency, making it more ‘cost-effective’ for them and thus increasing their buying appetite toward these emerging markets. As such, at least in principle, local businesses should take advantage of the low exchange rate of their local currency to try to export more. Historically, some major economies deliberately depress their currency values in order to make their exports more competitive. However, at least at this point in time, the local export sector in many emerging markets faces at least three significant challenges.

First, as a whole, economies worldwide are not necessarily thriving; even major economies are preoccupied with slow demand, as there is not much disposable income available for purchasing goods either domestically or globally. In the United States, for example, the Federal Reserve, as the country’s de facto central bank, is contemplating whether to reverse its interest rate hiking trend to provide fresh impetus for economic growth there. Even America has to stimulate its own domestic demand before it can afford to renew its buying spree globally. The other major economies are mostly in similarly dire economic straits. So, foreign demand for local exports in many emerging markets has not increased, corresponding to low local currency value. They will have to wait for more significant economic recovery in the major economies.