Cash management in Asia has, until now, overwhelmingly involved simply buying US treasuries. With the defence of their currencies on their minds, rather than investment returns, the region's central banks have done so at just about any exchange rate setting or yield.
Suitably packaged into structured products that hedged out exchange rate risk, corporates had done so to pursue reasonable and, importantly, risk-free returns.
The outcome has been that US households and their state and federal governments have continued spending far more than they earned or collected in tax revenues, financing the growing shortfalls by exchanging IOUs for Asia's ready savings.
But a long-standing debate renewed by sharp dollar falls on currency markets this week was whether this Asian largesse might be ending. The latest fall of the US dollar against Asian currencies, some now argue, could be the final stages of a long-awaited adjustment in the currency.
In the view of Patrick Gillot, Standard Chartered's Hong Kong treasurer, the latest weakness in the dollar is the prelude to more weakness - partly for short-term reasons such as the presidential election in the US and the spike in oil prices but more importantly because markets have begun focusing on the unsustainable nature of the country's 'twin deficits'.
Added to this, he said, was the impression that Japan might abandon attempts to cap or reverse gains made by the yen against the falling dollar, leaving exporters to wrestle with the consequences but easing oil import bills.
Put all of those ingredients into the mix, he says, 'and we could be entering a new trend of a bearish dollar'. To the extent that a rebound in the Japanese economy presented more attractive domestic investment opportunities, a reduced appetite for US treasuries could force US rates higher, he said.
