Crying foul Holding steady Exchange rates against the dollar January 1st 2002-100 Small wonder, therefore, that complaints about the Asians behaviour are getting louder. When Europe's finance ministers met their Asian counterparts at a 三w。三 summit in Bali in July, they made a fuss about those weak currencies. America's Treasury secretary, John Snow, went to China earlier this month specifically to lobby for a change in the exchange-rate regime. And tensions are rising within Asia itself. The Japanese ar unhappy about the undervaluation of China's currency, and the south Korean government recently suggested that China should allow the yuan to appreciate. broadly speaking those complaints are justified. Asia's J FMAMJJASONDJEMAMJJAS currencies must play a part if the world is to stop relying 2002 2003 on the single American engine. But too many of Asia's Source: Thomson Datastream critics oversimplify both the dilemma facing the world economy and the difficulties facing individual Asian countries In the short term, Asia's central banks are right to claim that they are supporting the world economy not undermining it. Were Mr Fukui and his friends to give up on American bonds overnight, the dollar would plummet and bond prices would soar. To help the world economy. the adjustment needs to be gradual-a point that is often lost on the shrillest foreign critics Second, Europeans, especially, tend to exaggerate how much they are suffering. True, the euro has borne a disproportionate share of the dollar's adjustment so far, but without the Asians interventions the fall in the dollar would have been steeper, so in the short term the europeans may not be much worse off. The point is not that the Asians are harming the Europeans in particular, but that they are preventing the adjustment of America's imbalances, making the long-term problem worse hird, although Asia's central banks are all doing the same thing(buying dollars), their economies are by no means all in the same boat. This suggests that no single solution will suit everyone Too much of a good thing Rising foreign-exchange reserves are not necessarily a bad thing Countries need reserves to guard against sudden shocks; say a big drop in exports or an unexpected drying-up of foreign lending. As economies grow, so the level of reserves tends to rise. In general, more open economies need more reserves than those where foreign trade is less important and those with a fixed currency, such as China, need more reserves than those with a floating one Reserves are particularly important for emerging economies. As these countries open up to foreign capital, they need relatively more res hat was one painful lesson of the 1997-98 Asian financial crises, when several emerging economies turned out to have insufficient reserves given their level of short-term foreign debt.Crying foul Small wonder, therefore, that complaints about the Asians' behaviour are getting louder. When Europe's finance ministers met their Asian counterparts at a summit in Bali in July, they made a fuss about those weak currencies. America's Treasury secretary, John Snow, went to China earlier this month specifically to lobby for a change in the exchange-rate regime. And tensions are rising within Asia itself. The Japanese are unhappy about the undervaluation of China's currency, and the South Korean government recently suggested that China should allow the yuan to appreciate. Broadly speaking, those complaints are justified. Asia's currencies must play a part if the world is to stop relying on the single American engine. But too many of Asia's critics oversimplify both the dilemma facing the world economy and the difficulties facing individual Asian countries. In the short term, Asia's central banks are right to claim that they are supporting the world economy, not undermining it. Were Mr Fukui and his friends to give up on American bonds overnight, the dollar would plummet and bond prices would soar. To help the world economy, the adjustment needs to be gradual—a point that is often lost on the shrillest foreign critics. Second, Europeans, especially, tend to exaggerate how much they are suffering. True, the euro has borne a disproportionate share of the dollar's adjustment so far, but without the Asians' interventions the fall in the dollar would have been steeper, so in the short term the Europeans may not be much worse off. The point is not that the Asians are harming the Europeans in particular, but that they are preventing the adjustment of America's imbalances, making the long-term problem worse. Third, although Asia's central banks are all doing the same thing (buying dollars), their economies are by no means all in the same boat. This suggests that no single solution will suit everyone. Too much of a good thing Rising foreign-exchange reserves are not necessarily a bad thing. Countries need reserves to guard against sudden shocks; say, a big drop in exports or an unexpected drying-up of foreign lending. As economies grow, so the level of reserves tends to rise. In general, more open economies need more reserves than those where foreign trade is less important; and those with a fixed currency, such as China, need more reserves than those with a floating one. Reserves are particularly important for emerging economies. As these countries open up to foreign capital, they need relatively more reserves. That was one painful lesson of the 1997-98 Asian financial crises, when several emerging Asian economies turned out to have insufficient reserves given their level of short-term foreign debt