After these crises Asia's emerging markets rapidly built up their arsenal of foreign exchange According to an analysis in the IMF's latest World Economic Outlook, this build-up was justified by economic fundamentals until about 2001. since early 2002, however, reserves have rocketed and are now unnecessarily high The suspicion, therefore, is that Messrs Fukui, Zhou, Fai-nan and company have been buying dollars for nefarious reasons: to keep their exports artificially cheap and hold on to their traditional export-led growth. Exports now make up 64% of the region s gDP, up from 55% in the early 1990s. Asians seem to like it that way. Yusuke Horiguchi, chief economist of the Institute of International Finance and former top Asia expert at the IMf, talks of a deeply rooted mercantilist instinct in Asia with an almost religious attachment to trade and current account surpluses But this passion for trade surpluses is not without its problems Not only does it prevent Asians from playing their part in rebalancing demand away from America, it also contravenes the rules of world trade. The charter of the IMF prohibits a country from manipulating its currency to gain an unfair competitive advantage"over its trading partners The definition of manipulation includes protracted large-scale intervention in one direction in the exchange markets. That sounds suspiciously like what the Asians have been doing Unfortunately there is no simple answer, because all the countries' problems are different. Japan is by far the region's biggest economy. Unlike the others, it is a rich industrial country which has been running a current-account surplus since 1981. It already has the largest dollar reserves in the world and is accumulating more at a rapid clip all this suggests that Japan should take the biggest share of any dollar adjustment in Asia. Yet, as the previous section explained the country suffers from chronic deflation. A sharp appreciation in its currency right now could undermine any hope of boosting growth in the short term. On balance, therefore, most analysts have concluded that a boost to Japanese demand will be more helpful to the world economy than a stronger yen on economic grounds that is the right choice, but politically it will make it harder to persuade other Asian countries to let their currencies appreciate Collectively the other dollar-buyers in Asia pack an even bigger economic punch than Japan 20% of world trade, compared with Japans 5%. Their combined current-account surplus in China, South Korea, Taiwan and the region 's other emerging economies together account 2002 was $133 billion, larger than Japan' s($113 billion or the euro zone ' s($72 billion ). That is why they must play a big part in any global economic adjustment China, in particular, is crucial. Leaving aside Japan, it is the region's giant, with by far the fastest-growing economy and the biggest stash of reserves. Most Asian countries are terrified that China will beat them on every product, so no country will allow its exchange rate to rise unless china 's does too China's currency, the yuan, has been fixed at 8.3 to the dollar since 1994. In the late 1990s Chinas fixed currency won it many plaudits. as other currencies in Asia succumbed to financia crises, the yuan remained stable(appreciating sharply against the rest of Asia ). China was credited with preventing a round of dangerous competitive devaluations Now, however, China's attachment to its fixed rate generates hostility. After years of fast growth and huge inflows of foreign investment, claim the critics, the yuan should be strongerAfter these crises, Asia's emerging markets rapidly built up their arsenal of foreign exchange. According to an analysis in the IMF's latest World Economic Outlook, this build-up was justified by economic fundamentals until about 2001. Since early 2002, however, reserves have rocketed and are now unnecessarily high. The suspicion, therefore, is that Messrs Fukui, Zhou, Fai-nan and company have been buying dollars for nefarious reasons: to keep their exports artificially cheap and hold on to their traditional export-led growth. Exports now make up 64% of the region's GDP, up from 55% in the early 1990s. Asians seem to like it that way. Yusuke Horiguchi, chief economist of the Institute of International Finance and former top Asia expert at the IMF, talks of a “deeply rooted mercantilist instinct” in Asia “with an almost religious attachment to trade and current￾account surpluses”. But this passion for trade surpluses is not without its problems. Not only does it prevent Asians from playing their part in rebalancing demand away from America, it also contravenes the rules of world trade. The charter of the IMF prohibits a country from manipulating its currency to “gain an unfair competitive advantage” over its trading partners. The definition of manipulation includes protracted large-scale intervention in one direction in the exchange markets. That sounds suspiciously like what the Asians have been doing. Unfortunately there is no simple answer, because all the countries' problems are different. Japan is by far the region's biggest economy. Unlike the others, it is a rich industrial country which has been running a current-account surplus since 1981. It already has the largest dollar reserves in the world, and is accumulating more at a rapid clip. All this suggests that Japan should take the biggest share of any dollar adjustment in Asia. Yet, as the previous section explained, the country suffers from chronic deflation. A sharp appreciation in its currency right now could undermine any hope of boosting growth in the short term. On balance, therefore, most analysts have concluded that a boost to Japanese demand will be more helpful to the world economy than a stronger yen. On economic grounds that is the right choice, but politically it will make it harder to persuade other Asian countries to let their currencies appreciate. Collectively, the other dollar-buyers in Asia pack an even bigger economic punch than Japan. China, South Korea, Taiwan and the region's other emerging economies together account for 20% of world trade, compared with Japan's 5%. Their combined current-account surplus in 2002 was $133 billion, larger than Japan's ($113 billion) or the euro zone's ($72 billion). That is why they must play a big part in any global economic adjustment. China, in particular, is crucial. Leaving aside Japan, it is the region's giant, with by far the fastest-growing economy and the biggest stash of reserves. Most Asian countries are terrified that China will beat them on every product, so no country will allow its exchange rate to rise unless China's does too. China's currency, the yuan, has been fixed at 8.3 to the dollar since 1994. In the late 1990s China's fixed currency won it many plaudits. As other currencies in Asia succumbed to financial crises, the yuan remained stable (appreciating sharply against the rest of Asia). China was credited with preventing a round of dangerous competitive devaluations. Now, however, China's attachment to its fixed rate generates hostility. After years of fast growth and huge inflows of foreign investment, claim the critics, the yuan should be stronger