World Bank’s alert over economic stability in Asia

The World Bank today waded into the currency wars to imply that the US was artificially undermining exporters in emerging markets by flooding them with cheap dollars.

China and others have long argued that US monetary policy, super low interest rates and quantitative easing was sending a wave of cash flowing into higher-yielding emerging markets, undermining their export competitiveness and pumping up inflation and asset bubbles.

The World Bank warned these surging capital inflows threatened Asia's economic stability.

It raised the prospect of a repeat of the 1997/98 Asian financial crisis when a flood of western money into the region pumped up property and share prices there, only for them to collapse when the money flows reversed.

"The authorities in east Asia need to take adequate precautions to ensure that they do not repeat the same mistakes twice in slightly over a decade," said the World Bank's semi-annual report.

Actions could include taxes on foreign activities such as introduced by Brazil's president Lula, aimed at reducing overseas capital flows into the country and preventing bubbles.