How Did the Appreciation of the U.S Dollar and Depreciation of the Yuan Affect the Timing and Magnitude of the Asian Currency Crisis?

Firstly, the sharp appreciation of US dollar in mid-1995 affected the export competitiveness of ASEAN countries (Hu & Kasa 1998; Radelet & Sachs 1998; Glick 1998). Partly because US market was the most important market for exports, the �export-depended’ ASEAN countries pegged their currencies to the US dollar. This pegged system worked well before 1995 as dollar fell against yen and was weak. However, since the second half of 1995, dollar began recovering against yen and other currencies. For illustration, by mid-1997, the value of dollar against yen rose by over 50% and against the German mark rose by 20%. Hence, this sharp dollar appreciation during mid-1995 andmid-1997 led to a worsening of export competitiveness in ASEAN countries (Glick 1998). The loss of export competitiveness made these countries’ production capacity largely idle and profit return on investments plunge. Moreover, Radelet & Sachs (1998) also added that the dollar appreciation probably modestly raised the real debt serving burden since most ASEAN countries’ foreign debts were dollar-denominated. These kinds of phenomenon led to deteriorate in current account deficit and gave incentives to central banks to devalue currencies (Huh & Kasa 1998). Speculators recognized this and attacked the ASEAN currencies which triggered the Asian currency collapse.

With regard to yuan depreciation, there were different voices on its contributions to Asian currency crisis. On January 1994, China unified its official exchange rate with the market rate, and Chinese yuan depreciated from 5.8 per US $ to 8.7 per US $ (Hu & Kasa 1998; Fernald et al. 1998; Kwan 1999). Theoretically, since China exported similar products with ASAEN countries, the depreciation of yuan was considered increasing the Chinese export competitiveness at the expense of ASAEN countries. Therefore, several commentators such as Makin (1997), Bergsten (1997) and Glick (1998) argued that China’s preemptive devaluation in 1994 had significant effected the ASEAN countries’ exports and it was the first of a number of events leading to Asian currency crisis. However,