"Dollar Is King": Indonesia Joins India In Begging Fed To Stop Shrinking Its Balance Sheet

It's getting a little tight around the neck for emerging market central bankers.

On the same day that the governor of Malaysia's central bank quit, and just days after Urjit Patel, governor of the Reserve Bank of India, took the unprecedented step of writing an oped to the Federal Reserve, begging the US central bank to step tightening monetary conditions, and shrinking its balance sheet, thereby creating a global dollar shortage which has slammed emerging markets (and forced India into an unexpected rate hike overnight), Indonesia’s new central bank chief joined his Indian counterpart in calling on the Federal Reserve to be "more mindful" of the global repercussions of policy tightening amid the ongoing rout in emerging markets.

As Bloomberg reports, in his first interview with international media since he took office two weeks ago, Bank Indonesia Governor Perry Warjiyo - who bears a remarkable resemblance to what Jamie Dimon would look like if he were about 40 pounds overweight - echoed what Patel said just days earlier, namely that the pace of the Fed’s balance sheet reduction was a key issue for central bankers across emerging markets.

Bank Indonesia Governor Perry Warjiyo

As a reminder, the RBI Governor made exactly thew same comments earlier this week, arguing that slowing the pace of stimulus withdrawal at a time when the US Treasury is doubling down on debt issuance, would support global growth, as the alternative would be an emerging markets crisis that would spill over into developed markets.

In a thinly veiled warning addressing the Fed, Warjiyo said that "we know every country must decide their policy based on domestic circumstances but look, you have to take account of your actions and the impact of your actions to other countries, especially the emerging markets."

Actually, no it doesn't: the only thing the Fed has to take into account is what its private owners (see "Bernanke's Former Advisor: "People Would Be Stunned To Know The Extent To Which The Fed Is Privately Owned") ask and proceed accordingly.

The growing complaints from EM central bankers come at a time when the Fed continues to tighten monetary policy, and with another interest-rate hike expected next week, emerging markets across the globe are bracing for a further selloff. Bank Indonesia has already raised its key rate twice to help bolster its currency, while the Reserve Bank of India on Wednesday became the latest to move, increasing its policy rate by 25 basis points to 6.25%, surprising a majority of analysts who expected no change.

“Communication is very important,” Warjiyo said. “We are looking for the Fed to communicate more clearly the intention of their policy so the market can understand clearly and also react and all the central banks can also anticipate and consider it in their policy making.”

Actually, here the Fed has been especially clear, often more so than the market, and unlike in 2015 and 2016, has been hiking just as often as its "dot plot" said it would.

Still, Warjiyo's comments underscore the difficult policy choices central bankers are being forced to make as they try to respond to external forces driving their currencies.

On Tuesday, South African central bank Governor Lesetja Kganyago said the Fed is communicating its intentions better than it did in 2013 during the taper tantrum, but its job is being complicated by U.S. fiscal policy.

“Nobody figured out that the U.S. could embark on all of these trade policies that they had embarked on and that complicates the work of the Fed,” he said in Johannesburg. “I don’t think that they had factored in earlier that there will be stimulus that had been put in for the U.S. economy from the fiscus.”

Unfortunately for all these central bankers, it's about to get even more difficult as policy normalization in Japan and Europe will bring more uncertainty, further monetary tightening and more outflows from emerging markets. Warjiyo said that while the “dollar is king” at the moment, it may lose that status next year.

“There are three global players that impact the future of interest rates and exchange rates. Now it’s only the U.S.,” Warjiyo said. “That’s why the U.S. and the dollar are king. But next year if Europe starts normalizing, Japan starts normalizing, then I don’t think the U.S. or the dollar will be the only king.”

Like India, the Indonesian central bank moved decisively - and unexpectedly - to support the rupiah, holding an out-of-cycle meeting last week in which he increased the benchmark rate by 25 bps to 4.75%. The thinking goes that by pre-empting the uncertainty in financial markets, the central bank has been able to stabilize the currency, Warjiyo said on Wednesday, adding that more rate hikes are possible if financial and economic conditions warrant it.

“Yes, there is a possibility of a rate hike,” Warjiyo said. “Of course, the magnitude and timing will be measured and will depend on our calibration of new information that will be coming.”

And while rate hikes are great to stabilize EM currencies and capital outflows, if only briefly, there is a just as unpleasant tradeoff: they cripple economic growth, and the result - in virtually every single case - is a recession, which sooner or later shits into capital markets..

Indeed, as Bloomberg's Garfield Reynolds writes, "India's rate hike was Asia's latest forced policy action as USD strength and Fed tightening spur emerging-market central banks to follow suit to stop FX routs. The result has been a massive surge in the average 2-year swap rate for EM Asia, and that may make conditions tight enough to hold down the region's equities relative to U.S. peers."

And once enough peripheral emerging markets tumble, it is only a matter of time before the contagion spills over into the core, and - eventually - the US.


DavidFL Wed, 06/06/2018 - 22:52 Permalink

“Communication is very important,” Warjiyo said. “We are looking for the Fed to communicate more clearly the intention of their policy so the market can understand clearly and also react and all the central banks can also anticipate and consider it in their policy making.”

Where have these "thinkers" been for the last year and a half? Even my 20 year old college student daughter knows the US Fed intends to shrink its BS and interest rates are edging up!  WTF. 

No wonder we call them - developing countries; I think what is still developing is their cognitive thinking abilities!

Escrava Isaura NidStyles Thu, 06/07/2018 - 03:12 Permalink

We're all monkeys.

Malaysia is just a symptom. Here’s the disease.

Billy the Poet When the US dollar finally folds no one in their right mind will support a new fiat reserve currency.

Billy, whatever nation that runs out of dollar their economy will collapse, including the US. I understand that the general public is really stupid of the complexity of money. It’s impossible for them to grasp. It’s too exotic; however, they will find themselves in a civil war.

Cognitive Dissonance: Just the opposite. They will BEG for the ‘leadership’ a new reserve currency will provide.

Exactly, because people like stability. Religion is another form of stability. Take god and money out and people are lost because people are weak, and industrialization made them even more so. Survival is a nasty business.

US elites, which half are foreigners, run the world. The rest of the populations in America are just on for the ride. Look at IMF, it’s an extension of US Treasury. United Nations, on the critical issues, does as told by whatever the current US administration is.

I understand that US conservatives and the rest of the world have a romantic ‘narrow’ view of capitalism because they were spoiled and brainwashed by capitalism as well they have unrealistic views.


Capitalism is the disease.   


In reply to by NidStyles

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In reply to by beemasters

Grimaldus Escrava Isaura Thu, 06/07/2018 - 06:47 Permalink

Geez, there is always some progressive complaining about the progressives in control and wanting moar progressiveness.

The Federal Reserve is a creation of progressives dude.

The US has been ruled by progressives since about 1900.

This aint capitalism, it's tyranny and you want moar. Typical progressive stupid.

Just embrace your progressive suck, be happy.









In reply to by Escrava Isaura

new game Billy the Poet Thu, 06/07/2018 - 06:00 Permalink

i be watching what iran does! what part of fuk you fed is so difficult?

fuk swift. fuk imf. fuk these money suking leaches. are you a sovereign nation?

call the banksters together for a top level meeting and implement a

work around the dollar. the pain is in the cost to implement. sooner the better.

same analogy goes for leaving the euro. leave the club-club fed, club euro, same shitster banksters...

calling london, nobody is answering(pink floyd)-lol...

In reply to by Billy the Poet

Jeffersonian Liberal Billy the Poet Thu, 06/07/2018 - 07:40 Permalink

Seriously? What about cryptos? Those currencies would have "fiat" written all over them (if they were not primarily 'cashless'). But hey, there's no better way for the central banks to get rid of all cash and coin than by allowing cryptos to become firmly established and then banning them all and replacing them with the central banks' (global) digital currency.

Also, what these world 'leaders' are saying is this: "We demand that the US worker in the private sector continue to pay the way for people all over the world by paying the hidden tax called inflation as the US Fed Reserve continues to destroy their fiat currency.

Let's get back to a sound currency, balanced trade, and let's stop making the American worker pay the socialist handouts in other countries.

In reply to by Billy the Poet

Deflationist DavidFL Wed, 06/06/2018 - 23:15 Permalink

Both India and Indonesia are extremely corrupt. Despite suffering Dollar liquidity problems several times in the past, they have been lackadaisical in taking any meaningful actions due to culture of corruption. Let them get Burned and let IMF once again discipline them until next crisis. Monkeys have higher IQ than the elites of these countries.

In reply to by DavidFL

Fred123 DavidFL Thu, 06/07/2018 - 01:20 Permalink

I've worked and taught with the residents of these developing countries for the last 10 years. They will return to the state that they been at for the last 2000 years as the last few years have been an aberration. They are nigger rich only. Progress is either very little or non-existent. They developed nothing and will continue to develop nothing. Fuck them.

In reply to by DavidFL

indus creed Ginsengbull Wed, 06/06/2018 - 23:19 Permalink

"These people" (India, China) financed your empires and your industrial revolution, so you could talk outta your ass on some internet forums. These two were the dominant economies for the last two millenia, save the last 250 years (when imperial forces were busy extracting and looting resources from them).


India and China are not emerging economies. They are re-emerging economies.


So yes, b1chez, we wuz kangs.



In reply to by Ginsengbull