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Rise of dollar forwards builds risk for Asia's central banks
From Bloomberg News
via The Hindu, Chennai, India
Central banks across Asia are increasingly using derivatives to protect their currencies against a strong dollar, raising questions over how long they can do so and whether they are just storing up trouble for the future.
The Reserve Bank of India's net dollar short forward position -- the amount of dollars that will be sold at a future date for a pre-set price -- hit an all-time high of $68 billion in December. Meanwhile Bank Indonesia's net short book reached $19.6 billion, its highest since at least 2015, according to the latest official data.
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The swelling forward books point to a shift in strategy among central banks intervening to defend their currencies. But the use of derivatives in addition to spot trades to push back against the dollar is raising concerns about the risk that selling pressure is being deferred rather than removed.
"It's basically pushing out currency depreciation to a later date and in the meantime, keeping headline reserves high as a way of displaying confidence," said Dhiraj Nim, a currency strategist at Australia and New Zealand Banking Group. "I'm a bit worried about that scenario." ...
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