Two years ago, the central bankers of Asia formed an alliance that pledged to defend the region's currencies with a collective war chest worth hundreds of billions of US dollars.
Through a series of bilateral repurchase agreements, each was supposed to come to the rescue of another when speculators threatened.
Now the region's currency pegs are crumbling under repeated attacks from without and a quiet retreat from within but where is the unified defence that was meant to make speculators quake in their boots? The repo agreements have not played any visible role in saving either the baht or the peso from defeat.
Perhaps the silence from Asian allies comes from a sense of the inevitable. Unlike 1995, central bankers around the region can no longer blame misguided hedge funds for drawing a false analogy between Asia and Latin America. Asia has developed a few problems of its own that look enough like Mexico during the peso crisis to bring back the speculators.
Even Joseph Yam Chi-kwong, who brought central banks together in 1995 to form the alliance, conceded that overvalued currencies, weak fundamentals and relatively immature financial markets left some Asian currencies susceptible to attack.
With this round of speculative attack, central banks may find their tools limited to higher interest rates and a draw down of reserves for an outright defence in global currency markets.
