Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: On a Friday afternoon earlier this month, Bloomberg's Ruth caston
Speaker 2: was monitoring Asian markets and hoping for calm ahead of
Speaker 2: her weekend.
Speaker 1: Truth to be told, I was hoping for a very
Speaker 1: quiet Friday because it was a public holiday here in
Speaker 1: Singapore Thursday. Baby boy, It definitely didn't end up that way.
Speaker 2: For short, Ruth covers the foreign exchange market from Singapore,
Speaker 2: and on that particular Friday, an Asian currency that rarely
Speaker 2: makes headlines started to search.
Speaker 1: The Taiwan dollar. At around eleven thirty local time in Taipei.
Speaker 1: It jumped by about two percent, but it didn't just
Speaker 1: stop there. By the time markets had closed, the Taiwan
Speaker 1: dollar was up about three percent higher against the US currency.
Speaker 1: To put things into perspective, it was the single largest
Speaker 1: one day advance since nineteen eighty eight. This is a
Speaker 1: normally incredibly sedate currency. Something had clearly blown up.
Speaker 2: The blow up at market watches globally on high alert,
Speaker 2: and on Monday morning the surge continued. You're looking at
Speaker 2: the Taiwan dollar up against virtually everything, and up substantially
Speaker 2: against everything. Everything is done against a Taiwan don. I
Speaker 2: think it's one.
Speaker 1: The Taiwan dollars move was so large that it was affecting,
Speaker 1: you know, peers in Asia. For instance, the Malaysian rinked
Speaker 1: rose more than one percent on Friday. On Monday again boom,
Speaker 1: we saw another one percent move, the South Korean one
Speaker 1: jumped more than two percent at one stage, and then
Speaker 1: we saw Hong Kong authorities ramp up sales at a
Speaker 1: local dollar because the green bag was just weakening. So
Speaker 1: it was a spiral effect and in a whirlpool, just
Speaker 1: everything being sucked in.
Speaker 2: Eventually, the Taiwan dollars stabilized, but the spike underscored a
Speaker 2: much larger issue d dollarization, a movement away from US
Speaker 2: assets as markets grapple, which shifts in US economic policy,
Speaker 2: and Ruth stepping back. Why is it such a big
Speaker 2: deal that Taiwan's dollar surged to these unprecedented levels.
Speaker 1: It was hugely disruptive on a lot of levels of
Speaker 1: the economy and also society. If you're a sophisticated investor,
Speaker 1: then you're caught out on the wrong side of the trade.
Speaker 1: You would have seen huge losses because this is a
Speaker 1: normally stable currency. On an economic level, a surge of
Speaker 1: this magnitude can really impact exporters, traders, insurers, And this
Speaker 1: is coming at a time when the US was imposing
Speaker 1: terrists right on most of the world and people are
Speaker 1: to digest that. So there would have been also people
Speaker 1: across markets that will be thinking about the other side
Speaker 1: of the trade, which is a dollar. The green bag
Speaker 1: is on eighty eight percent of all trades in the world,
Speaker 1: so dominant that every single trade yield, every single currency exchange,
Speaker 1: eighty eight percent of that every minute involves the dollar,
Speaker 1: and people started thinking, are we wrong? Did we get
Speaker 1: the dollar wrong here? And if so, maybe I should
Speaker 1: just really sell it and sell it against.
Speaker 2: What Welcome to the Big Take Asia from Bloomberg News.
Speaker 2: I'm Rebecca Cheung Wilkins. Every week we take you inside
Speaker 2: some of the world's biggest and most powerful economies and
Speaker 2: the markets, tycoons, and businesses that drive this ever shifting region. Today,
Speaker 2: on the show, Asia's Dollar Unwind, are Asian nations rethinking
Speaker 2: their traditional approach of hoarding US dollars and what does
Speaker 2: this mean for the global economy As confidence in the
Speaker 2: dollar faces increasing scrutiny. For decades, the US dollar has
Speaker 2: been the world's dominant currency. It's deeply embedded in government,
Speaker 2: central banks, life insurers, and even your investment and retirement funds.
Speaker 2: That's unlikely to change for the time being. But what
Speaker 2: we saw happen with Taiwan's currency earlier this month is
Speaker 2: extremely significant. It shows the degree to which investors are
Speaker 2: looking for viable alternatives to the dollar.
Speaker 1: Unprompted, a hedge fund manager told me, this is a
Speaker 1: river's asiing flanantier crisis worth seeing right now.
Speaker 2: Bloomberg's Ruth Carson says the spiral spark fears that Taiwan's
Speaker 2: dollar search wasn't a one off event.
Speaker 1: What I found really profound was that soul searching people going,
Speaker 1: what if indeed this is the start of a domino
Speaker 1: effect and we see money instead of being sucked out
Speaker 1: of Asia, we see the opposite capital flows coming in
Speaker 1: because momentum right, And indeed we did see that in
Speaker 1: a way, Literally a week and a bit after the
Speaker 1: Taiwan dollar explosion, the South Korean one actually jumped two percent,
Speaker 1: another super sedate currency typically and the whole narrative just
Speaker 1: gained a lot more traction that Hey, we are at
Speaker 1: that point where This is nineteen ninety seven in reverse
Speaker 1: twenty twenty five style.
Speaker 2: In nineteen ninety seven, the Asian financial crisis began with
Speaker 2: the devaluation of Thailand's currency and quickly spread through the region.
Speaker 1: There was an over reliance on short term borrowings at
Speaker 1: the time by countries like Thailand and South Korea and
Speaker 1: all that, but the short term borrowings were not backed
Speaker 1: by dollar assets, and that in turn really triggered a
Speaker 1: debt crisis. There were very heart lessons learned of we
Speaker 1: need to ensure that we have a treasure chest of
Speaker 1: really strong, high quality desired assets like treasuries like the dollar,
Speaker 1: and make sure we don't get to the nineteen ninety
Speaker 1: seven repeat again. So that really led Asian nations to
Speaker 1: double down on earning dollars from exports to the US,
Speaker 1: building up surpluses that goes back to the treasure chest idea.
Speaker 2: Since nineteen ninety seven, the eleven biggest economies in Asia
Speaker 2: have collectively bought four point seven trillion dollars of US
Speaker 2: equities and bonds, which they reinvested right back into America.
Speaker 1: In the early two thousands, almost every dollar earned, for instance,
Speaker 1: by the large Asian exporters to America was reinvested back
Speaker 1: into its equities and bond markets, and Asian currencies have
Speaker 1: been as a result almost unvalued for decades.
Speaker 2: That tram peaked into thousand and four and started tapering
Speaker 2: off as China's membership in the WTO reshaped investments in
Speaker 2: the region. The two thousand and eight financial crisis and
Speaker 2: last years carried trade crisis in Japan also spooked investors
Speaker 2: into rebalancing their portfolios. Then Trump started his second term.
Speaker 1: So almost unanimously talking to people across markets. The message
Speaker 1: is that Donald Trump's trade war two point zero is
Speaker 1: only accelerating the process of de dollarization, which in a
Speaker 1: way is jargon for people turning away from the dollar
Speaker 1: and finding alternatives. That undisputedly is the theme across the
Speaker 1: seven point five trillion dollars a day currency market. It
Speaker 1: is definitely the theme driving this insatiable bid for gold,
Speaker 1: for instance, and also for just healthy alternatives. I mean,
Speaker 1: even arguments like bitcoin, you know, are coming into the equation.
Speaker 1: What can people do to find other stores of value
Speaker 1: other than the US dollar. We're hearing people say that
Speaker 1: markets are at an inflection point. We're witnessing the birth
Speaker 1: pains of a new regime. Others are saying, this is
Speaker 1: just the beginning of the great unwind of US dollar
Speaker 1: hoarding and exceptionalism.
Speaker 2: And how are we seeing investors in Asia reacting to
Speaker 2: this idea of reverse capital flow? And if it is
Speaker 2: coming back to Asia, where does the capital go?
Speaker 1: Japan's largest life insure, for instance, nip On Life, they
Speaker 1: are actively looking for alternatives to treasuries. This is a big,
Speaker 1: you know, change in stance. The tide is turning after
Speaker 1: a multi decade trend. That Titanic is turning. And don't
Speaker 1: forget China, China, which is so critical. Data from treasury
Speaker 1: has shown that they've shrunk. The treasury is holding in March.
Speaker 1: The question then is you're right, where does the capital go.
Speaker 1: It's going to gold, it's going to Europe, It's going
Speaker 1: to places like the Singapore dollar, Taiwan dollar. We've seen
Speaker 1: strength in Asian currency, so the drips and traps are
Speaker 1: coming home, but it does take time and people are
Speaker 1: still figuring out where that money will ultimately lead after
Speaker 1: the break.
Speaker 2: What a reframing of global financial markets means for Asia's economies.
Speaker 2: The recent surge in Taiwan's dollar came as a shock
Speaker 2: to investors, but the move globally towards Taiwan's currency doesn't
Speaker 2: exist in a vacuum. Figures released in late April showed
Speaker 2: strong economic growth in Taiwan in the the first few
Speaker 2: months of twenty twenty five, and market watchers speculated that
Speaker 2: foreign exchange rates could be part of the ongoing trade
Speaker 2: negotiations between the US and major trade partners across Asia,
Speaker 2: including Taiwan. What does a stronger Taiwan dollar mean for
Speaker 2: people in Taiwan? Who does it benefit? Who does it hurt?
Speaker 1: So I think a good way to think about it
Speaker 1: would be to look at people in Taiwan and also
Speaker 1: outside Taiwan. It's good for people who are overseas and
Speaker 1: hoold Taiwan's assets like real estate shares, given that the
Speaker 1: value of their local assets of just can you imagine
Speaker 1: just search six percent and you didn't have to do
Speaker 1: anything at all just because of the currency move. But
Speaker 1: you know what, if you are an exporter, I mean
Speaker 1: it's painful. All of a sudden you have got a
Speaker 1: six percent hit.
Speaker 2: Take Taiwan's TSMC, the world's largest chip maker, as an example.
Speaker 2: It estimates that for every one percent appreciation in the
Speaker 2: Taiwan dollar, its operating margin declines by zero point four percent.
Speaker 2: Taiwan's life insurers, who are huge investors in US treasuries,
Speaker 2: also took a significant hit.
Speaker 1: If you're a local life insurer who have overseas assets
Speaker 1: predominantly in the US, and you are unhitched or unprepared
Speaker 1: for such set of moves in a currency, it severely
Speaker 1: impacts the value of your investments in a very very
Speaker 1: short space of time. Gomman Sachs they put pen to
Speaker 1: paper and they did a calculation that a ten percent
Speaker 1: gain in the dollar and this would will This could
Speaker 1: potentially also apply to other players in the market. But
Speaker 1: a ten percent gain and a Taiwan dollar could lead
Speaker 1: to eighteen billion dollars in unrealized currency loss for the insurers,
Speaker 1: and that would effectively wipe out their capital reserves.
Speaker 2: Okay, so that's the impact on the day. But longer
Speaker 2: term is a stronger Taiwan dollar is it good for Taiwan?
Speaker 1: So a stronger Taiwan dollar is great for local consumers
Speaker 1: in the sense that your imports become a lot cheaper.
Speaker 1: All of a sudden, Your imported cheese has just gotten
Speaker 1: a lot cheaper, they have more spending power as well,
Speaker 1: So if you think about it, you can go overseas,
Speaker 1: you can get a lot more bang for your buck.
Speaker 1: But if you're an exporter and this is entrenched, all
Speaker 1: of a sudden there is a regime shift and you
Speaker 1: are facing a stronger Taiwan dollar as your base case,
Speaker 1: you are going to be in a lot of pain.
Speaker 1: Taiwan is a major exporter, and we all know strong
Speaker 1: currencies not great for your p and l.
Speaker 2: Outside Taiwan, some of the world's biggest money managers are
Speaker 2: wary of how the unwinding of the US dollar could
Speaker 2: affect other Asian countries, especially those that have large trade
Speaker 2: surpluses with the US.
Speaker 1: There are indicators out there suggesting that Asian currencies are
Speaker 1: indeed severely undervalued, which puts this risk really at the
Speaker 1: forefront of things. On average, for example, major Asian currencies,
Speaker 1: including the yen and yue, which are seen as two
Speaker 1: very anchor currencies and as part of the world, are
Speaker 1: fifty seven percent weaker than exchange rates that take into
Speaker 1: account differences in the cost of living. That's according to
Speaker 1: our calculations, and that's close to an all time historic
Speaker 1: low of fifty nine percent. It was set in twenty
Speaker 1: twenty four.
Speaker 2: And this is a controversial question with really only one answer.
Speaker 2: What is the currency in Asia that could be a
Speaker 2: dollar alternative and why is it so controversial as an alternative?
Speaker 1: Yes, this is definitely something that is heavily debated across
Speaker 1: research desks. I'm sure. So I'm going to quote Netics's
Speaker 1: you know, there's a fantastic chief Asia Pacific economist over
Speaker 1: there who said that for this to be structural, you
Speaker 1: should know where to go and no gives the return
Speaker 1: that the dollar has been giving nobody. So the euro
Speaker 1: is the second most trader currency in the well, the
Speaker 1: yen is the third, behind the dollar. But even though
Speaker 1: it is combined, it's hard to find a true alternative
Speaker 1: to the green back and the Treasury's market, which backs
Speaker 1: a lot of this right, and the US equity markets.
Speaker 1: But people are certainly thinking about it, and their thinking
Speaker 1: in many ways is enough to trigger some really big
Speaker 1: swings in markets. Now imagine if that gains traction.
Speaker 2: But essentially, is this rewiring, this reframing of the global
Speaker 2: financial system and move away from US dollar dominance and
Speaker 2: move into emphasis on local currencies in Asia? Is this
Speaker 2: good or bad for Asia.
Speaker 1: You know, I don't even know whether I have an
Speaker 1: encapsulating answer for that. What I think we can conclude
Speaker 1: is that definitely there will be a recalibration of markets.
Speaker 1: How it will land and ultimately end up, and who
Speaker 1: the winners and losers are is still to be determined.
Speaker 1: Because this is such a seismic shift, people are racing
Speaker 1: to figure out. For instance, if we have a stronger
Speaker 1: Singapore dollar, a stronger Hong Kong dollar, a stronger yen,
Speaker 1: a stronger in a nation repair, how would that ultimately
Speaker 1: change everything from the psyche of the consumer through to
Speaker 1: the fabric of society and businesses as we know it today.
Speaker 1: So all of a sudden, if you're going to have
Speaker 1: people really focusing on buying Asia as a whole, it
Speaker 1: could accelerate everything from tourism through to technology, through to education,
Speaker 1: through to medicine and rewire not just the market side
Speaker 1: of things, but whole economies. But I think people are
Speaker 1: seriously at the point where they're trying to gain plan
Speaker 1: what that could look.
Speaker 2: This is the Big Take Asia from Bloomberg News. I'm
Speaker 2: Rebecca Chung Wilkins. To get more from the Big Take
Speaker 2: and unlimited access to all of bloomberg dot Com. Subscribe
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