More Currency Devaluations in Asia Feared

A currency devaluation by Vietnam sparked fears that China and other Asian nations would also devalue their currencies, moves that could worsen the region’s economic crisis.

Such fears triggered sharp declines in several Asian stock markets today, with Hong Kong’s benchmark Hang Seng stock index falling in early trading as much as 2.7% to its lowest level since January 1995. Stocks also tumbled in Malaysia, Singapore and the Philippines. The dollar rose against the Japanese yen and other Asian currencies.

The Chinese yuan fell to a five-year low on Shanghai’s black market as talk spread that Beijing would devalue the currency to spur its slowing economy. A possible devaluation by China is seen as almost certain to spark further devaluations by other nations that will need a cheaper currency to keep their exports competitive. But such mass devaluations could launch the region into what one economist has called a “death spiral.” The Asian crisis started in Thailand in July last year when the country devalued the baht.

The yuan fell to 9 to the U.S. dollar, about 8.5% less than its official rate and the weakest since China last devalued the currency in 1993, according to black market traders.

But a spokesman for the People’s Bank of China, the nation’s central bank, said China has no plans to devalue.

Vietnam sparked the concern by devaluing its currency, the dong, to spur exports. The State Bank of Vietnam lowered the rate around which the dong is allowed to trade. The so-called fixing rate was changed to 12,998 to the dollar from 11,814, according to foreign bankers in Hanoi.

The Vietnamese move prompted traders to sell yen and other Asian currencies, including the South Korean won, the Thai baht and the Philippine peso. That reflected how sensitive currency traders have become to the possibility of another round of Asian currency devaluations because of recent declines in the yuan.

“A major focus is on Asia,” said Kazuki Fujita, a foreign-exchange manager at Industrial Bank of Japan. With Japan hobbled by its own banking and economic crisis, the yen could slip further if Asia’s economic woes deepen, he added.

The dollar rose as high as 145.06 yen, up from 144.32 yen in late New York trading Thursday.