LAST WEEK, THE US DOLLAR INDEX HIT A NEARLY 20-YEAR HIGH, AND AFTER JAPAN'S SUSTAINED DEPRECIATION AND THE EURO FALLING TO 1:1 AGAINST THE US DOLLAR, THE BOND AND FOREIGN EXCHANGE MARKETS OF EMERGING MARKET COUNTRIES IN ASIA ALSO SUFFERED SERIOUS IMPACTS.THE MARKET IS CONCERNED THAT IT MAY TRIGGER MORE CAPITAL OUTFLOWS FROM EMERGING MARKETS IN ASIA, UNDERMINING THE REGION'S HOPES FOR RECOVERY IN THE SECOND HALF OF THE YEAR. IN ORDER TO AVOID FURTHER IMPACT ON THE DOMESTIC MARKET, A "REVERSE CURRENCY WAR" HAS BEEN LAUNCHED GLOBALLY.GLOBAL CAMPAIGN AGAINST THE US DOLLAR ACCORDING TO DATA RELEASED BY THE RESERVE BANK OF INDIA, AS OF JULY 15TH, INDIA'S FOREIGN EXCHANGE RESERVES HAVE DECREASED BY $7.5 BILLION TO $572.7 BILLION. THIS IS THE LOWEST LEVEL SINCE NOVEMBER 6, 2020. EARLIER THIS MONTH, THE RESERVE BANK OF INDIA'S FOREIGN EXCHANGE RESERVES HAD DECREASED BY $15.5 BILLION.SHAKTIKANTA DAS, THE GOVERNOR OF THE RESERVE BANK OF INDIA, STATED THAT THE DECLINE IN FOREIGN EXCHANGE RESERVES WAS DUE TO THE CENTRAL BANK'S "STRONG DEFENSE" AGAINST THE DOMESTIC CURRENCY EARLIER IN THE DAY TO ALLEVIATE MARKET CONCERNS ABOUT FURTHER DEPRECIATION OF THE RUPEE.DUE TO US INTEREST RATE HIKES, MARKET RISK AVERSION, AND CAPITAL OUTFLOWS, THE RUPEE HAS FALLEN BY 7% THIS YEAR.PREVIOUSLY, SOUTH KOREA, SINGAPORE, AND THE PHILIPPINES UNEXPECTEDLY ANNOUNCED POLICY TIGHTENING LAST WEEK, SURPRISING INVESTORS AND HIGHLIGHTING THE URGENCY FOR ASIAN POLICY MAKERS TO TAKE ACTION.AMONG THEM, SOUTH KOREA AND THE PHILIPPINES HAVE SUCCESSIVELY ANNOUNCED INTEREST RATE HIKES FOR OVER 20 YEARS, WHILE SINGAPORE HAS RAISED THE MIDPOINT OF ITS EFFECTIVE EXCHANGE RATE POLICY RANGE, ALLOWING ITS CURRENCY TO APPRECIATE.HONG KONG AND INDIA HAVE ALSO CHOSEN TO USE THEIR FOREIGN EXCHANGE RESERVES TO INTERVENE IN EXCHANGE RATES;FOR A LONG TIME, ASIAN CENTRAL BANK DECISION-MAKERS HAVE TAKEN A DOVISH STANCE TO SUPPORT THE COUNTRY'S ECONOMIC RECOVERY FROM THE PANDEMIC, BUT THIS HAS LED TO CURRENCY WEAKNESS AND CAPITAL OUTFLOWS.PREVIOUSLY, DUE TO THE FEDERAL RESERVE'S VOW TO PUSH DOWN THE HOTTEST INFLATION IN 40 YEARS, THE US DOLLAR INDEX CONTINUED TO SOAR, REACHING A 20-YEAR HIGH. OTHER EUROPEAN CENTRAL BANKS ARE ALSO UNWILLING TO SHOW WEAKNESS AND HAVE BEGUN TO STAGE A 'REVERSE CURRENCY WAR'.MANY CENTRAL BANK MOTHERS HOPE TO REDUCE IMPORT COSTS AND INCREASE OVERSEAS PURCHASING POWER THROUGH CURRENCY APPRECIATION DURING A TIME OF HIGH GLOBAL INFLATION.FOLLOWING THE FEDERAL RESERVE'S "UNCONVENTIONAL" 75 BASIS POINT RATE HIKE, THE SWISS NATIONAL BANK ANNOUNCED ITS FIRST RATE HIKE SINCE 2007. ON THE SAME DAY, THE BANK OF ENGLAND RAISED INTEREST RATES FOR THE FIFTH TIME SINCE DECEMBER LAST YEAR, AND HINTED THAT FURTHER RATE HIKES WERE STILL ON THE WAY. THE POUND WAS "EAGER TO MOVE", AND RECENTLY THE EUROPEAN CENTRAL BANK ANNOUNCED ITS FIRST 50 BASIS POINT INTEREST RATE HIKE IN 11 YEARS AT ITS JULY MEETING.ACCORDING TO MEDIA REPORTS, GOLDMAN SACHS ECONOMIST MICHAEL CAHILL SAID HE DOESN'T REMEMBER WHEN CENTRAL BANKS IN DEVELOPED COUNTRIES TARGETED STRONG CURRENCIES IN SUCH A RADICAL WAY, AND THE FOREIGN EXCHANGE INDUSTRY HAS ALSO REFERRED TO IT AS A 'REVERSE CURRENCY WAR'.THIS IS BECAUSE FOR OVER A DECADE, CENTRAL BANKS OF VARIOUS COUNTRIES HAVE BEEN WALKING ON THE OPPOSITE PATH. THEY HOPE THAT THEIR DOMESTIC CURRENCY WILL REMAIN WEAK, WHICH MEANS THAT DOMESTIC COMPANIES CAN EXPORT GOODS AT MORE COMPETITIVE PRICES TO BOOST ECONOMIC GROWTH. HOWEVER, IN THE FACE OF THE CONSTANTLY RISING HIGH INFLATION, A SERIES OF COSTS SUCH AS ENERGY, FOOD, AND APPLIANCES ARE SOARING. THEREFORE, INCREASING THE PURCHASING POWER OF CURRENCY SUDDENLY BECOMES PARTICULARLY IMPORTANT.WITH THE EUROPEAN AND AMERICAN CENTRAL BANKS STARTING TO RAISE INTEREST RATES AND THE RUSSIA UKRAINE CRISIS PUSHING UP GLOBAL INFLATION, THE DOVISH STANCE OF ASIAN CENTRAL BANKS HAS BECOME OUTDATED. UNDER THE PRESSURE OF HIGH INFLATION, THE BOND AND FOREIGN EXCHANGE MARKETS OF EMERGING MARKET COUNTRIES IN ASIA HAVE PREVIOUSLY SUFFERED SEVERE IMPACTS.IN THE PHILIPPINES, WHICH HAS BEEN HIT THE HARDEST, THE PHILIPPINE PESO EXCHANGE RATE HAS FALLEN BY MORE THAN 10% THIS YEAR, AND THE US DOLLAR PESO EXCHANGE RATE HAS FALLEN TO A HISTORIC LOW SINCE 2005. PHILIPPINE TREASURY BOND WERE ALSO SOLD OFF, AND THE YIELD OF 10-YEAR TREASURY BOND HAS SOARED 200 BASIS POINTS SINCE THE BEGINNING OF THE YEAR. THE SITUATION IN THAILAND IS SIMILAR, WITH INFLATION CONTINUING TO RISE AND THE THAI BAHT EXCHANGE RATE FALLING BY OVER 10% THIS YEAR.ACCORDING TO THE MARKET ANALYSIS, THE ASIAN MARKET SUFFERED A SELL-OFF, LARGELY DUE TO THE REACTION OF THE MARKET TO THE RISE OF US TREASURY BOND BOND YIELDS AND THE US DOLLAR. BUT EVEN WITHOUT CONSIDERING DEFENDING THEIR OWN CURRENCY, THE SUSTAINED HIGH INFLATION LEVELS FORCE ASIAN CENTRAL BANKS TO TAKE ACTION.ECONOMIST WELLIAN WIRANTO OF OCBC BANK CONCLUDED THAT ULTIMATELY, ASIAN CENTRAL BANKS ARE RESPONDING TO A MORE TIGHTENING GLOBAL MONETARY POLICY LANDSCAPE, AND OVERALL CENTRAL BANKS WILL CONTINUE TO BE FORCED TO RAISE INTEREST RATES.WHAT DOES THE STRENGTHENING OF THE US DOLLAR MEAN?UNDER THE CONTINUED STRONG INFLUENCE OF THE US DOLLAR, INVESTORS ARE VOTING WITH THEIR FEET, AND EMERGING MARKETS HAVE SUFFERED THE MOST SIGNIFICANT BLOW.ACCORDING TO THE INSTITUTE OF INTERNATIONAL FINANCE, AN ORGANIZATION REPRESENTING THE GLOBAL FINANCIAL INDUSTRY, THE NET OUTFLOW FROM EMERGING MARKETS IN JUNE WAS ESTIMATED TO BE $4 BILLION.ROBIN BROOKS, THE CHIEF ECONOMIST OF THE ORGANIZATION, SAID THAT ALTHOUGH THE CURRENT OUTFLOW IS STILL LOWER THAN THE LEVEL BEFORE THE COVID-19 PANDEMIC, IT IS EQUIVALENT TO THE "SHRINK PANIC" CAUSED BY THE FED'S STATEMENT THAT IT WOULD GRADUALLY END BOND PURCHASES IN 2013.ON JULY 10TH, ACCORDING TO AN ARTICLE BY JIAN SHI JUN, ACCORDING TO STATISTICS FROM JPMORGAN CHASE, INVESTORS HAVE WITHDRAWN NEARLY $50 BILLION FROM EMERGING MARKET BOND FUNDS SINCE THE BEGINNING OF THIS YEAR, AND THE OUTFLOW OF FUNDS FROM EMERGING MARKET BOND FUNDS HAS REACHED A NEW HIGH SINCE 2005.IN TERMS OF THE STOCK MARKET, ACCORDING TO CAIXIN INTERNATIONAL CITING BLOOMBERG ON JULY 18TH, FOREIGN INVESTORS HAVE WITHDRAWN $71 BILLION FROM EMERGING ASIAN STOCK MARKETS OUTSIDE OF CHINA SINCE THE BEGINNING OF THIS YEAR, WHICH IS ALREADY TWICE THE OUTFLOW IN 2021.UPON CHECKING THE MSCI ASIA EX JAPAN INDEX, IT WAS FOUND THAT THE CUMULATIVE DECLINE SINCE THE BEGINNING OF THE YEAR HAS EXCEEDED 17.72%.WHEN THE US DOLLAR CONTINUES TO APPRECIATE, COUNTRIES THAT ISSUE DEBT IN US DOLLARS WILL FACE GREATER RISKS BECAUSE THE COST OF DEBT REPAYMENT IS HIGHER.SRI LANKA IS THE MOST VIVID EXAMPLE. IN MAY OF THIS YEAR, HEAVY DEBT AND RAMPANT INFLATION DEPLETED THE FOREIGN EXCHANGE RESERVES OF THIS ONCE RISING SOUTH ASIAN COUNTRY, MAKING IT UNABLE TO PAY FOR THE IMPORT COSTS OF BASIC COMMODITIES SUCH AS FUEL AND MEDICINE.SRI LANKA WAS THE FIRST COUNTRY TO DECLARE BANKRUPTCY IN THIS INFLATION STORM, BUT IN THE CURRENT SITUATION, IT MAY NOT BE THE ONLY ONE.ACCORDING TO IIF DATA, AS OF THE FIRST QUARTER, THE GOVERNMENTS OF ARGENTINA, UKRAINE, AND COLOMBIA HAD ISSUED DEBT DENOMINATED IN US DOLLARS THAT ACCOUNTED FOR OVER 20% OF THEIR GDP, WHILE ONLY A FEW ASIAN AND EUROPEAN COUNTRIES HAD THIS FIGURE BELOW 2%.MARCELLO ESTEV Ã O, DIRECTOR OF MACROECONOMICS, TRADE AND INVESTMENT AT THE WORLD BANK, SAID:EVERY COUNTRY WITH HUGE DEBTS DENOMINATED IN US DOLLARS IS WORRYINGFACED WITH INFLATIONARY SHOCKS, EMERGING MARKETS CAN GAIN THE ABILITY TO HEDGE RISKS BY HOLDING FOREIGN CURRENCY ASSETS, WHICH IS ALSO THE STRATEGY CURRENTLY ADOPTED BY INDIA AND HONG KONG.AND COUNTRIES WITH TRADE SURPLUSES MAY ALSO PERFORM BETTER IN THE PRESENCE OF A STRONG US DOLLAR, AS THEY CAN OBTAIN DOLLARS OR REDUCE THEIR DEPENDENCE ON IMPORTS.