1997 Asian Financial Crisis

Currency exchange rates can be categorised as floating, in which case they constantly change based on a number of factors, or they can subsequently be fixed to another currency, where they still float, but they additionally move in conjunction with the currency to which they are pegged. Floating rates are a reflection of market movement, demonstrating the principles of both demand and supply, as well as limit imbalances in the international financial system. Fixed exchange rates are predominantly used by developing countries as they are preferred for their greater stability. They grant further control to central banks to set currency values, and are often used to evade market abuse. (MacEachern, A. 2008; Simmons, P.

Even despite a series of difficult circumstances for the country they have still shown a significant growth in real GDP. This is largely influenced by the strong growth the country has demonstrated in exports and domestic consumption. If their government continues to work on restoring private investors confidence this will only help with improving the country’s competitiveness which would only promote more trade openness for Thailand.

China, the largest growing market in the world, currently has a policy regarding monetary regulation that allows the Yuan to “float”. This has seen the Yuan appreciate by approximately 24% over the past few years. Today, the exchange rate between the Chinese Yuan and the American Dollar is approximately 6.3 Yuan to 1 Dollar. Some argue that China should revalue the Yuan again the dollar, establishing a more fixed exchange rate. Others believe that current should allow

In October 1997, with the impact of the Asian financial crisis, most of the Asian countries’ economic were malaise (Sharma, 2003), even China. In 1998, the Chinese government implemented a series of policies to promote economic growth, and led China into a golden stage of the economic growth ( ). Therefore, the study of this period of successful economic policy is particularly necessary. This essay will lay out the successful policies of China in this period from four different aspects at first. Then, I will analyze and evaluate the success of the policy in each period. Finally, I will summarize the success of these policies.

High inflations such as galloping inflation leads to currency value depreciating leading to low economy growth rate and a turnover in the foreign investors.

Over the past three decades, East Asia’s economy has developed rapidly with two economic giants, Japan and China, dominating the region’s economy. Japanese revived economy since post-war period has been heralded as a miracle as it showed remarkable improvement over the last thirty years. From 1960s to 1980s, Japan’s overall economic growth increased rapidly by 19%. Additionally, China’s economy had undergone extensive restructuring and the result was a tenfold increase in its GDP since 1978. As of 2014, China holds the title of largest economy in the world surpassing United States (World Factbook, 2014). This essay will analyze the differences and similarities of Japan and China in relation to their business systems.

East Asian success was also achieved by private domestic investments and rapidly growing human capital were the main principal of the growth, in my opinion. Also by agriculture, declining in relative importance, experienced rapid growth and productivity improvement. The population growth rates declined more rapidly than in other parts of the developing world. I think that the development policy was a major ingredient in achieving rapid growth. The policies to increase integrity of the banking systems and to make are more accessible to non-traditional savers, raised by levels of financial savings. I think that the Asian economies have been better than others at providing macroeconomics environment and reliable legal frame work to promote domestic

Since China was able to implement any law or set of rules in its country, China was able to progress at greater speed than any other countries. To support this, Chen also pointed out that the large government’s shares in economy shows that in China, the economic growth has been mainly driven by investment, rather than consumption (Hayat).

When there is a problem with balance of payments the speculator can expect the necessity of exchange rate adjustment. In case of growing deficit they can worsen the situation by selling the currency and thus even enlarge the deficit.

     In the present day, the world's economy is ever-changing and adjusting. Many different reasons control the reasons for this. The future of currency is something that can only be predicted and is not guaranteed. However, there are many determing factors behind the changes that can take place. Asia and North America are two continents that have economies that have recently changed or are in the midst of change.

If a country's economy is in a slow growth or recessionary phase, the value of their currency depreciates. The value of a country's currency also depreciates if its major economic indicators like retail sales and Gross Domestic Product, or GDP, are declining. A high and/or rising unemployment rate can also depreciate currency value because it indicates an economic slowdown. If a country's economy is in a strong growth period, the value of their currency appreciates.

The international investors are the ones who are directly affected by the devaluation of currency. It causes their total assets in real terms to go down, which means their confidence level in the country’s economy is hit. This causes the withdrawal of the investments in large amounts. This pressures the buy side which may not be able to match the selloff, causing a dip in the prices suddenly, which in turn results in the markets tanking. This causes a panic situation in the markets that the international investors have invested in.

In the 1950’s when most of the countries were in a conflict of choosing between a capitalist or a socialist system, East Asia opted to go for the capitalist system and were hence able to witness growth in the coming years. In 1980’s most of the East Asia enjoyed great investment rates and a higher amount of savings as compared to the other countries (Moreno, 2015). After having witnessed continuous growth the mid 1990’s period came as shock to everyone, the currency had started to devaluate which further lead to reduction in export prices and hence slowing the economic growth. The crisis had first started from Thailand where the foreign exchange market had crashed and Thai baht had pegged down, starting from Thailand the crisis went on to hit other countries like Malaysia, Indonesia and Philippines with the stock market of each country collapsing (Moreno, 2015). It had become evident that the benefits of the capitalist system had faded and investors had started regretting their decision of investing large sums of money in the East Asian market. However within a short of span of time the crisis had ended and by the end of 1999, most of the Asian countries had come back on track and had started witness growth again. This was possible primarily by structural changes which are discussed below in detail.

Ruohong Zhao Economic Development in East Asia, Term paper Dr. Yifan Zhang May 1, 2006

As the world’s eleventh largest country in 1996, people expected Korea to surpass Japan in the coming millennium and Korea was invited to join the OECD (Organization for Economic Cooperation and Development). The facts that by then Korea was the world’s top manufacturer of computer RAM chips, the world’s second-largest ship-builder, the third largest maker of semi-conductors, and the fourth largest electronics producer meant that by the time the currency crisis hit the surrounding region following a devaluation of Thai baht in July 1997, investors (defined in this paper as the general public, plus speculators) believed that the crisis wouldn’t hit Korea. These investors were either too blinded by the Korea’s phenomenal economic performance (a GDP equivalent to