Businesses Brace for Currency Chaos in Asia, a Region With a History of Crisis
A 1997 financial catastrophe casts a long shadow in countries that are seeing the value of their money plunge to record lows.
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A vendor at a street market in Phuket, Thailand. Many businesses in Asia are being squeezed by the strength of the dollar, which has soared to record levels this year.
A vendor at a street market in Phuket, Thailand. Many businesses in Asia are being squeezed by the strength of the dollar, which has soared to record levels this year.Credit...Lauren DeCicca for The New York Times
Daisuke WakabayashiBen Dooley
By Daisuke Wakabayashi and Ben Dooley
Daisuke Wakabayashi reported from Seoul, and Ben Dooley from Tokyo.
Oct. 4, 2022
Updated 8:57 a.m. ET
Tigun Wibisana and Sandra Kok, who own a cafe in Malaysia, are facing an excruciating decision that could make or break their business of 14 years: Can they increase prices to cover rising expenses without driving customers into the arms of their bigger rivals?
The cost of the coffee beans that the couple, who are married, buy is spiraling because they are traded globally in U.S. dollars, and the Malaysian ringgit has fallen to a 24-year low. Compound that with an inflationary spike in prices for butter and flour, essential ingredients for its pastries, and the shop’s profits have plunged more than 25 percent this year.
“Eventually we may have to raise prices to survive, but I don’t have the guts to do it now,” said Mr. Wibisana, 65, who roasts the beans and makes the baked goods.
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Their cafe, SiTigun on Penang Island, is one of many businesses in Asia that are being squeezed by the strength of the dollar, which has soared to record levels this year. America’s currency is used extensively to buy and sell goods around the world, and its hypervalue is exacerbating the pain of surging prices for energy and other imports caused by the war in Ukraine and the pandemic.
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Tigun Wibisana and Sandra Kok own the SiTigun cafe on Penang Island in Malaysia. “Eventually we may have to raise prices to survive, but I don’t have the guts to do it now,” Mr. Wibisana said.
Tigun Wibisana and Sandra Kok own the SiTigun cafe on Penang Island in Malaysia. “Eventually we may have to raise prices to survive, but I don’t have the guts to do it now,” Mr. Wibisana said.Credit...Suzanne Lee for The New York Times
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The cost of coffee beans is spiraling because they are traded globally in U.S. dollars, and the Malaysian ringgit has fallen to a 24-year low. Then there’s inflation. SiTigun cafe’s profits have plunged more than 25 percent this year.
The cost of coffee beans is spiraling because they are traded globally in U.S. dollars, and the Malaysian ringgit has fallen to a 24-year low. Then there’s inflation. SiTigun cafe’s profits have plunged more than 25 percent this year.Credit...Suzanne Lee for The New York Times
Throughout Asia, from the Vietnamese dong to the Philippine peso, currencies are tumbling to record lows, the type of widespread currency weakness not seen since the 1997 financial crisis. That has unnerved businesses and policymakers who recall how a string of Asian currencies folded under the pressure of a strong dollar.
To minimize the risk of that kind of calamity, policymakers are scrambling to stabilize their currencies. The State Bank of Vietnam raised interest rates by a full percentage point last month after Prime Minister Pham Minh Chinh implored the central bank to act. The dong had fallen for nine straight days to a 29-year low.
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The same day Vietnam raised interest rates, Japan, where the yen has dropped around 25 percent against the dollar this year, announced it would intervene to strengthen its currency for the first time since 1998. In China, where the renminbi is trading near 14-year lows, the central bank has taken a series of measures to slow the currency’s depreciation, including warning speculators against making bets on it.
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Commuters in Seoul. South Korea’s currency, the won, is trading near 13-year lows against the U.S. dollar.
Commuters in Seoul. South Korea’s currency, the won, is trading near 13-year lows against the U.S. dollar.Credit...Tina Hsu for The New York Times
More on the Relations Between Asia and the U.S.
Harris’s Asia Trip: What on the surface appeared to be a routine, symbolic visit for Vice President Kamala Harris has become a tricky dance of diplomacy in an increasingly unnerved region.
South Korea: President Yoon Suk Yeol has aligned his country more closely with the United States, but there are limits to how far he can go without angering China or provoking North Korea.
China: President Biden signed an executive order designed to sharpen the government’s powers to block Chinese investment in technology in the United States, in a move that is bound to heighten tensions with Beijing.
Taiwan: Visits to Taiwan by House Speaker Nancy Pelosi and a delegation including Indiana’s governor have exacerbated tensions between the United States, which is seeking to deepen its ties with the self-governing island, and China, which claims Taiwan as its own.
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Shanghai. China’s central bank has taken measures to slow the renminbi’s depreciation, including warning speculators against making bets on it.
Shanghai. China’s central bank has taken measures to slow the renminbi’s depreciation, including warning speculators against making bets on it.Credit...Qilai Shen for The New York Times
Heightening the alarm, the dollar — powered by the most rapid Federal Reserve interest rate increases in decades — shows no signs of slowing. It is up nearly 20 percent against a group of major currencies from a year ago.
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In Asia, the trouble facing local currencies has resurfaced the collective trauma of 25 years ago, when excitement over the region’s dazzling growth became a crisis seemingly overnight.
The chaos started in Thailand when the country’s central bank ran out of the dollars it was using to keep its own currency stable and back its loans. It quickly spread to South Korea, Indonesia and other countries as they struggled to cushion their falling currencies. Speculators who had charged into the region en masse expecting huge returns retreated just as quickly.
By the end of 1997, the International Monetary Fund had arranged more than $100 billion worth of support for Thailand, Indonesia and South Korea to prevent their financial systems from collapsing. The next year, the economies of the countries at the heart of the crisis retreated sharply: 13.7 percent in Indonesia, 9.7 percent in Thailand, 6.7 percent in Malaysia and 5.8 percent in South Korea. Governments struggled with corporate bankruptcies and political instability.
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The Shinjuku district in Tokyo. In Japan, the yen has dropped around 25 percent against the dollar this year.
The Shinjuku district in Tokyo. In Japan, the yen has dropped around 25 percent against the dollar this year.Credit...Noriko Hayashi for The New York Times
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A Nissan showroom in Tokyo. Major Japanese manufacturers that have substantial overseas business have gotten a healthy profit boost from assets and earnings held in dollars.
A Nissan showroom in Tokyo. Major Japanese manufacturers that have substantial overseas business have gotten a healthy profit boost from assets and earnings held in dollars.Credit...Noriko Hayashi for The New York Times
“It was very insulting, humiliating and devastating, and I think the region will never forget it,” said Hoe Ee Khor, chief economist at ASEAN+3 Macroeconomic Research Office, known as AMRO, a group that supports the Chiang Mai Initiative, an agreement among Asian countries to pool funds to help one another in a cash crisis. “But because of that, they were determined to never let it happen again, and they took the painful medicine to reform.”
Most economists and financial market analysts believe there is little risk that a similar crisis will spread across the region. At least not yet. Asian economies are fundamentally stronger than before, they say, and the painful lessons learned from the meltdown spurred them to build financial systems designed to prevent future collapses.
Countries have undergone several major changes that have made their economies much less susceptible to a strong dollar than they were in the late 1990s. For one thing, they have much less debt borrowed in dollars: The size of local currency bond markets in 10 Southeast Asian countries, plus Japan, China and South Korea, is about 123 percent of their collective gross domestic product, compared with 74 percent in 2000, according to AMRO.
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Patong Beach in Phuket, Thailand. Asia’s 1997 financial crisis started in Thailand when the country’s central bank ran out of the dollars it was using to keep its own currency stable and back its loans.
Patong Beach in Phuket, Thailand. Asia’s 1997 financial crisis started in Thailand when the country’s central bank ran out of the dollars it was using to keep its own currency stable and back its loans. Credit...Lauren DeCicca for The New York Times
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A market in Shanghai. Since the 1997 crisis, many Asian countries, including China, underwent major changes that have made their economies much less susceptible to a strong dollar. Credit...Qilai Shen for The New York Times
Many Asian central banks that used to keep their exchange rates in line with the greenback now allow them to fluctuate with market forces. While that means more volatile exchange rates, it also relieves some pent-up pressure that can trigger a collapse.
And most Asian countries have more foreign currency coming in than going out, allowing them to sock away significant reserves that they can deploy in an emergency to supplement imports or protect their own currency from depreciating.
As a result, Asia today is “in much better shape than any other region in the world,” said Sayuri Shira, a professor of economics at Keio University and former member of the Bank of Japan’s policy board.
Still, the strong dollar is testing the region’s defenses, forcing central banks to use their war chests to prop up their currencies — mainly by buying their own currencies and selling dollars. India and Thailand have spent more than 10 percent of their reserves on interventions this year, spending $75 billion and $27 billion in the foreign exchange markets, according to estimates from Nomura Holdings.
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A street food market in Phuket Old Town in Thailand.Credit...Lauren DeCicca for The New York Times
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A currency exchange in Bangkok. Thailand’s central bank has spent more than 10 percent of its reserves to prop up its currency this year, according to estimates from Nomura Holdings.Credit...Lauren DeCicca for The New York Times
Companies are having to adapt as falling currencies blow up their supply chains and put pressure on their profits.
Suh Jin, an executive at Mirage Furniture on the outskirts of Seoul, said the company imports $15 million to $20 million worth of home furnishings in an average year. But Mirage Furniture, which buys most of its products from Vietnam with U.S. dollars, has had to cut its imports by 10 percent since May because of the weakening won, which is trading near 13-year lows against the U.S. dollar.
While South Korea was able to emerge from the 1997 financial crisis fairly quickly, Mr. Suh said, he is worried that the company may have to lay off staff if the strong dollar and high inflation persist.
“We fear that the current situation will last longer,” he said.
The strong dollar has affected even businesses that rarely use it.
Classic Japan, a flower importer in Tokyo, had long paid its South East Asian vendors in yen. But sellers hungry for valuable dollars have begun offering their merchandise elsewhere, making it difficult to obtain some rare flowers, such as orchids.
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Kio Nishio, president of Classic Japan, a flower importer in Tokyo. “Domestic production is falling, so we want to import more,” he said. But a strong U.S. dollar has made that difficult.Credit...Noriko Hayashi for The New York Times
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Classic Japan has long paid its South East Asian vendors in yen. But sellers hungry for valuable dollars have begun offering their merchandise elsewhere, making it difficult to obtain some rare flowers, such as orchids.Credit...Noriko Hayashi for The New York Times
“Domestic production is falling, so we want to import more,” said Kio Nishio, the company’s president. But the current situation has made that difficult, he said.
Some companies, of course, can benefit from a strong dollar, which can lift corporate bottom lines in countries like South Korea that are heavily export focused. In Japan, trading companies and major manufacturers like Toyota that have substantial overseas business have gotten a healthy profit boost from assets and earnings held in dollars.
At the SiTigun cafe in Malaysia, the full impact of the weak ringgit will not be felt until months from now, when the next crop of beans has worked its way through farmers and middlemen to their coffee pots.
“The pandemic has already affected many businesses, and then inflation came as another challenge,” said Ms. Kok, who manages the shop. “But inflation and currency hits everyone. How do we survive?”
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The owners of SiTigun with their son. “The pandemic has already affected many businesses, and then inflation came as another challenge,” Ms. Kok said, adding, “How do we survive?”Credit...Suzanne Lee for The New York Times
Liani MK contributed reporting from Penang, Malaysia; Hisako Ueno from Tokyo; and Jin Yu Young from Seoul.
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Japan Intervenes to Prop Up the Sliding Yen
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Daisuke Wakabayashi is an Asia business correspondent for The Times, based in Seoul. @daiwaka
Ben Dooley reports on Japan’s business and economy, with a special interest in social issues and the intersections between business and politics. @benjamindooley
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