Just three months after the biggest developing economies sold dollars to support their currencies, policy makers from Colombia to China are moving to weaken exchange rates and revive exports as the International Monetary Fund forecasts the slowest trade growth in three years.
Colombian Finance Minister Juan Carlos Echeverry urged the central bank on Aug. 3 to boost minimum dollar purchases from $20 million a day, saying the country needs “more ammunition” to drive down the peso in the global “currency war.” The Philippines banned foreign funds from deposit accounts and unexpectedly cut interest rates in July as the peso hit a four- year high. In China, authorities lowered the yuan reference rate to the weakest since November, which according to Citigroup Inc. will create “headwinds” for other Asian currencies.
As the deepening European debt crisis led investors to retreat from developing nations, central banks drew on foreign- exchange reserves to limit declines, causing a combined $19.7 billion drop that month in Brazil, Russia and India, official data show. China’s holdings, the world’s largest at $3.24 trillion, fell $65 billion in the second quarter.
With Asian and Latin American currencies down about 9 percent since their peak in July 2011, policy makers aren’t worried about their nations’ losing competitiveness, said Kieran Curtis, who helps oversee $4 billion in emerging-market debt at Aviva Investors Ltd. in London.
Overseas investors boosted bond holdings by 1.4 trillion won ($1.2 billion) to a record 89.7 trillion won in July, or 17 percent of the total outstanding, government figures show.