A currency crisis could result if the region stops buying the dollar The fate of the US economy could rest in Asia's hands, regional economists suggested yesterday. While Asian central banks buy US dollars to stop linked currencies from rising in value, US debt repayments will be adequately serviced, they said. But problems could arise if China, Japan and other nations with pegged economies lose confidence in the US. Some analysts warn that this may be starting to happen as the US dollar weakens against the world's major currencies. Shane Oliver, the chief economist and head of investment strategy at Australian-based AMP Capital Investors, believes US President George W. Bush's administration caused the budget deficit blowout to stimulate economic growth. Dr Oliver expects the deficit to be brought under control in the longer term, although Asian economies will also have to play a part. 'If Asian countries fail to provide support, the US will continue to require large amounts of global capital to finance its borrowings,' Dr Oliver said from Sydney. 'To date, they've been getting a lot of that, with Asian economies reluctant to stop exchange rates from rising.' The biggest threat to the US is if Asian central banks stop paying US debt through buying government bonds. This could happen if the US dollar continued to fall significantly, he warned. 'Asian investors are incurring losses on their US investments and there's always a risk that at some point, they will tire of doing that,' Dr Oliver said. He said Asian central banks had been buying American dollars to prevent their own currencies from rising, but if Asia lost confidence in the United States, it could result in a downward spiral of the US dollar, which could prompt a currency crisis. Deutsche Bank's chief economist for Asia, Michael Spencer, agreed. A sharp rise in US interest rates or a slowing of its economy would also affect Asia, he said. Mr Spencer said: 'If investor confidence in the US suffers and the economy starts slowing down - particularly business investment - that then takes the legs out of our exports. The basis for growth in Asia then disappears. We would then both suffer high interest rates and slower growth.' Despite this, Mr Spencer believes the US will be able to bring its deficit under control. 'Given how much of the deficit of the past year to 18 months has reflected the need for temporary stimulus of the economy and spending on the wars on Iraq and terrorism, they will be able to bring it down,' he said. Deutsche Bank has forecast the deficit will be 4.2 per cent of gross national product next year, and although Mr Spencer believes this figure could be overly optimistic, he thinks the Bush administration is committed to taking action. But other senior economists doubted this would happen until after November's presidential election.