China to strengthen financial ties with ASEAN

Needed to safeguard regional financial stability.

Yi Gang, deputy governor of the People's Bank of China, said China and members of the Association of Southeast Asian Nations (ASEAN) should strengthen cooperation to safeguard regional financial stability amid recent currency depreciation in some Asian countries. 

Concerns about the effects of a reduction in quantitative easing by the US Federal Reserve have hammered emerging economies, which have been hit by capital outflows, currency depreciation and weakening stock markets, said Yi. Asian currencies especially the Indian rupee, the Indonesian rupiah and the Malaysian ringgit saw declines of 5% to 20% against the US dollar this year.

This region-wide depreciation has led to growing concerns that an Asian financial crisis similar to the one in 1997 might be in the offing. Analysts said a potential financial crisis in emerging markets is highly possible since there is increasing expectation of an appreciation in the US dollar.

Records show that every time the US dollar has entered an appreciation cycle, it has led to difficulties in emerging markets. This is what occurred in the Latin American debt crisis of the 1980s and the Asian financial crisis in 1997. In 1997, the Thai baht fell after the Thai government ran out of foreign reserves, which meant it was no longer able to peg the currency to the US dollar.