APEC warns against currency devaluations, property bubble

Asia Pacific economies must refrain from competitive currency devaluations and are vulnerable to speculative buying in the housing market, the APEC grouping’s research arm said.

Massive inflows of funds from industrialised economies into the region where they can get higher returns have pushed local currencies to appreciate, eroding competitiveness in the global markets, APEC’s Policy Support Unit said in a research paper.

The paper, released on Wednesday ahead of a weekend meeting of Pacific Rim trade ministers in Surabaya, Indonesia, said competitive currency devaluations could lead to bigger trade imbalances.

“It is of concern that the attempt to regain competitiveness may result in a simultaneous currency intervention by monetary authorities,” said the unit, the research arm of the Asia Pacific Economic Cooperation (APEC) forum.

“If that were to occur, it would create larger imbalances in the patterns of global trade and investment,” the paper said, adding it was crucial for APEC “to remain committed to refrain from competitive devaluation of currencies”.

The paper said the 21-member APEC should grow 4.2 per cent this year and 4.7 per cent next year, from a 4.1 per cent expansion last year.

However it said challenges remain, including lingering risks of a fallout from the euro zone debt crisis and the impact of large capital inflows from developed countries seeking larger returns in emerging markets.