Effects of an Unconventional Monetary Policy: Quantitative Easing (qe) to Emerging Countries in Asia

Effects of an Unconventional Monetary Policy: Quantitative Easing (QE) to emerging countries in Asia

1. Introduction 

Quantitative Easing (QE) is an Unconventional Monetary Policy that runs by the Central Bank to stimulate the national economic when there was the case that the Conventional Monetary Policy began to be ineffective and cannot be the mechanism to drive the economic system.   QE was used to inject the financial to sustain the economics of USA since the country was facing with the intangible assets crises and the less quality of credit since the second quarter of 2009 and continue until this has become the QE2 and QE3 measure in the late of past year; where this can recover the economics of USA (Moosa, 2014).

Though QE measurement will have the positive results for the US economics to return to enlargeable but it also shows the negative effects on the financial status of the Federal Reserve – Fed as well (Chen et al., 2012). Therefore, to reduce the financial amount to use in QE measurement is required if the economics begin to recover and can progress by themselves in order not to cause the risk on the financial status of the Federal Reserve – Fed. Surely, if that financial amount was slowed down, it will impact on the financial amount that flow in the global stock exchange. Especially, in Asia which during the past period the economics have strongly grown and pull in the large amount of financial.    

This essay aims to discuss on QE policy Effects to Emerging Countries in Asia which consist of positive effects and negative effects. The essay also discusses on the effects of QE tapering to Emerging Countries in Asia especially in Thailand, Malaysia and Indonesia.

2. Discussion

2.1 QE policy Effects to Emerging Countries in Asia 

As mentioned earlier, QE policy does not only impact on the economics of USA which is the country that runs this measure but it also largely impacts on other countries. Each group of countries has different views toward this issue. Williams (2014) believes that QE will help boost the confident in the global financial market that lowered a lot during the US financial crisis to return to work in more effective way in the condition of crises and stimulate the global economic to continue progress. This will help other countries to gain the benefits from trade and better investment than in case without QE. On the contrary, emerging countries especially the Asian nations consider that QE can have negative results of the economic system and the national financial (The Economist, 2014). Those who receive the capital no matter from the fluctuation of capital movement, the strong value of local currencies compared to the core currencies as well as risks from the imbalance in the economics system from any cost of properties that suddenly increased.

However, Harding (2013) pointed out that the economics in emerging countries will ongoing progress within the next 15 years period. From the success in economic evolution that drives by the growing of middle class and the expansion of city into the countryside areas; leading by Chinese economics with the continual growth which results on the high productivity of the economics from the market of new born countries up to 63 percent of world GDP in 2030 from the ratio of 38 percent at recent (Carbaugh, 2013). According to the information, it can be estimated that the economic condition of the emerging countries in the world economics in the next 15 years will shift from the follower to the leader. The success will result from the economic evolution by the leaders of the emerging countries especially, in Asia that will improve the economic with prompt on serious evolution for their nations.

International studies related to the impact of QE begins to receive more interesting especially after many countries from the group of  emerging countries face with the severe capital flow in condition and the value of their local currencies have quickly become strong during  2010 – early of 2013 (Moosa, 2014). Many units see this as the results from the QE implementation that the impact of QE can be divided into positive effects and negative effects as follows.

2.1.1 Positive Effects

As Fed enters to buy all the assets and securities of the public and private sector during the high risks presenting in the financial world, it helps the investors relax and dare to receive more risks. This is reflected from the lower risk premium and the higher price of properties that result on the stronger balance of financial institution and business sector (Zumbrun, 2013b). It also helps for the better fluid in the overall systems. All are the factors that support for more needs on risk properties investment as well as the properties of emerging countries (Williams, 2014). However, the following risk is running QE in big size and in the long period which can lead to mispricing of risk by the investors until there is the collection of sensitivity in the financial sector (Haynes, 2013).

According to The Economist (2014), operations of QE can enhance for more sustainability in the financial condition as well; especially if running the measure during the global financial crises since entering to buy properties of Fed aims to add the fluid into the market in order to back to normal condition. According to the study of Carbaugh (2013), it is found that QE operations have impact on the changes in investors’ behavior through the fluid condition and the better balance in the private sector; which the result is more than announcement effects.

Though in the short period, any emerging countries may be affected by the push factor of QE in the same way that is from the low interest rate in the main economics nation and the lower global risk. But the impact in the moderate and long period may be varied up to the   pull factors or the specific factors in each nation that result on the risk perception of the investor toward the certain nation (Chen et al., 2012). For example, the credibility of the financial and treasury policy, the guideline on the exchange rate as well as the institution structures that can reduce the negative externalities from QE spillovers.

Besides, Mattoo et al. (2012) also found that the level of financial movement into the emerging countries all in all do not higher than the before crisis period. But if considering according to region, it can be found that the capital that flow into Latin America as well as some countries in the group of ASEAN such as Thailand, Indonesia, and Malaysia are increased more than the period before crisis; while reducing in East European.

The side effects from QE tend to weaken the US dollar currency and by the way lessening the interests of the properties in US currency. The investors then need to hold the properties in the form of other currencies especially,   those of the emerging countries that become stronger besides to give the high returns; the investor will gain profits from the stronger of that currency value comparing to US Dollar in addition (Moosa, 2014).