Governments around the world stepped up efforts to stem the U.S. dollar's slide, as officials grow increasingly concerned about the impact of the weak greenback on their nascent economic recoveries.
Thailand, South Korea, Russia and the Philippines have been snapping up dollars this week in order to hold down the value of their currencies, traders said Wednesday, as the U.S. currency wallowed near 15-month lows.
China is one of the few exceptions among developing nations, seeing continued strong exports despite its currency's tie to the dollar.
In Latin America, Brazil's finance minister said the country's currency remained too strong, sparking speculation that the government would intensify recent efforts to curb the real's ascent. On Tuesday, Taiwan banned foreign investors from parking time deposits in the country in an effort to ease upward pressure on the local currency.
The fresh buzz over the dollar's fall prompted Treasury Secretary Timothy Geithner, visiting Tokyo on Wednesday, to repeat the Obama administration's commitment to a strong dollar. Still, Washington hasn't taken any concrete steps to arrest the slide. The weaker dollar is actually benefiting the U.S. as it struggles to come out of recession by helping keep U.S. exports competitive.
China is coming under new pressure from Pacific Rim countries to let its dollar-linked currency rise in value. On Wednesday, China's central bank made a nod to concerns about the declining dollar and yuan by issuing a rare change to the official language of its exchange-rate policy. The central bank said it would take major currency trends into account in setting policy, though it wasn't clear what impact that may have on the yuan's future value.
The U.S. wants to see a stronger yuan, though Washington has avoided explicit public pressure on China to abandon its policy of managing its currency. But in the jargon of finance ministers, Mr. Geithner has made clear that's what he thinks should happen. In an op-ed piece in Thursday's Wall Street Journal Asia, he emphasized the advantages of "market oriented exchange rates in line with economic fundamentals."
On Wednesday, the dollar briefly sagged to a 15-month low against a basket of major currencies before recovering slightly. It fell slightly against the euro, which was quoted at $1.4982 at 4 p.m. in New York. So far this year, the dollar is down 7% against the European currency.
Asian finance ministers, now gathered in Singapore for a meeting of the 21-member Asia-Pacific Economic Cooperation forum, are expected to raise their concerns about both the dollar's decline and the inflexibility of the Chinese yuan.
The fear is two-fold. If currencies surge against the dollar, it damages the ability of countries in the region to compete in world markets, by making their exports more expensive. What's more, one of their major competitors -- China -- ties its currency to the dollar. As the yuan sinks in tandem with the dollar, China is able to keep its export prices low and price out competition.
A concluding statement from the assembled APEC officials is expected to underline the importance of flexible exchange rates to sustainable global growth -- generally viewed as code for a rise in the Chinese yuan. Such efforts are unlikely to bear fruit in the near term, which means these countries must act on their own to slow their currencies' rise.
Experts estimate that some of the largest emerging economies may have spent as much as $150 billion on currency intervention over the past two months, judging from the growth of their international reserves, according to data from Brown Brothers Harriman. While that's not a huge amount in the currency markets, which have turnover of more than $3 trillion a day, traders pay keen attention to what the authorities are doing and where they are likely to intervene.
Thailand alone has bought $15 billion trying to push the dollar higher against the baht, Korn Chatikavanij, Thailand's finance minister, said in an interview with Dow Jones Newswires.
"Quite clearly, all Asian central banks have found it necessary to intervene, and it's costing us," Mr. Korn said.
The Chinese authorities aren't going to tip off financial markets in advance of a move in their currency, said Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. But the fact that they adjusted the phrasing of their exchange-rate policy in a quarterly report Wednesday could be a response to the growing attention to the yuan, particularly from fellow developing nations.
"It's one thing for the Chinese to ignore the U.S. and Europe," he said. "But when they start ignoring the developing G-20 it's a bit trickier."
For the last three years, the International Monetary Fund has been pressing China to revalue its currency. At the recent meeting of finance ministers from the Group of 20 nations in Scotland, the IMF once again said the yuan "remains significantly undervalued from a medium-term perspective."
Emerging nations are recovering from the global slump far faster than their developed counterparts and investors are flocking to buy their stocks and bonds. That in turn puts upward pressure on their currencies.
Efforts to stem the flow of foreign capital or to intervene in currency markets pose serious challenges for governments and aren't always successful. Unless a government takes radical steps, it can't affect a U-turn in its currency. However, it "can lean against the wind," says Win Thin, a currency strategist at Brown Brothers Harriman, in this case by slowing the pace of currency strengthening.
Developing nations aren't the only ones uncomfortable with the dollar's slide. European governments, especially Germany, will be increasingly uneasy if the euro continues to gain on the dollar.
Governments that try to check the rise of their currency often end up accumulating dollars which they may not need.
"I'm convinced that in the long term the dollar is more likely than not to decline in value, so we're building up assets that are declining in value over time," says Mr. Korn of Thailand. "That's not healthy."
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