Big Asian economies take on the forces of international capital—and win

Battling currency imfmarkets used to be considered unwise by central bankers and policymakers. Burning foreign-exchange reserves to take on the forces that push and pull a currency’s value was foolish, so the thinking went, and almost certainly futile. Orthodoxy held that a country seeking to defend its currency should raise interest rates, not sell reserves.This was put through a real-world test last year as America raised rates and the dollar climbed in value. Officials in many emerging economies deployed their holdings to defend local currencies. According to the , global foreign-exchange reserves fell by $1.1trn between the end of 2020 and the third quarter of 2022, with holdings of dollar-denominated assets accounting for half the decline.