TOKYO – Asia, it seems, learned one of the biggest lessons from the region’s 1997 crisis: an economy can almost never stockpile too many foreign exchange reserves.
Thailand, Indonesia, Malaysia, South Korea and others realized that the hard way. As speculators pounced, and the financial tide surged out, central banks were caught swimming without swimsuits.
Following the 1997-8 trauma, they busily spent the next decade re-clothing their economies by way of big currency-reserve holdings. They came in handy in 2008, when Wall Street crashed. In 2013, they helped the region ride out the worst of the US Federal Reserve’s “taper tantrum.”
But now, as the post-Covid-19 reflation scare upends investment portfolios everywhere, Asia risks once again being caught in the nude as oceans of liquidity suddenly dry up.
Granted, on the surface, the water looks calm.
Asia’s…
