By+Lan+Xinzhen

Recently， in Asian economies， currencies have devalued and the stock prices have plunged sharply， a situation similar to that immediately prior to the 1997 financial crisis. Many are wondering whether a crisis of a similar nature is once again on the Asian horizon.

The depreciating trend in many currencies is certainly worrisome as regards the regions overall economic health. As quantitative easing is rolled back in the United States， and with the Federal Reserve being predicted to at some point later this year to raise interest rates， Asian currencies have remained weak， with the Japanese yen， South Korean won， Singaporean dollar and Vietnamese dong continuing to slide. The same type of situation happened in 1997 that eventually led to the crisis.

There used to be high expectations for the Chinese yuan remaining stable. As the currency of the second largest economy in the world， a stronger yuan could serve to bolster confidence in the Asian economy at large.

However， despite its previous strength， the yuan lost a sizeable chunk of its value in August， causing the currencies of other Asian countries and regions to follow suit. Although the Peoples Bank of China， the central bank， has repeatedly emphasized that the depreciation of the yuan was aimed at correcting the gap between the central parity rate and the spot exchange rate and moreover， that the yuan is still on the track toward appreciation， concerns nonetheless remain. Therefore， as the yuan stabilized after falling 4 percent， currencies in other parts of the world have not stabilized but， on the contrary， continued to depreciate.

Commensurate with the currency market， the capital markets in Asia have been experiencing some tough times recently， particularly on August 24， when stock markets， foreign exchange markets and markets for major commodities in Asia-Pacific region tumbled altogether， causing widespread panic among investors.

In the short term， the prospect for Asian currencies stabilizing is not optimistic. It is widely believed that if the United States lifts its interest rates later this year， Asian currencies including the yuan will sharply devalue further， hardly good news for the Asian money market， which is volatile as is.

At present， there is considerable capital flight from emerging markets including China. The Bank for International Settlements has said that the debts of emerging economies doubled from 2009 to 2014， amounting to $4.5 trillion. That is to say， emerging economies recorded nearly $2-trillion capital inflow during the six years following the global financial crisis of 2008. According to statistics from NN Investment Partners， a bank based in the Netherlands， the capital outflow of emerging economies amounted to $940.2 billion over a 13-month period ending in July. The massive loss of liquidity has put their currencies under huge pressure of depreciation， especially those in Asia.

In accordance with the general laws of economics， continuing depreciation of an economys currency results in the prices of its assets plunging， causing asset price bubbles to burst and a large amount of capitals to flow out. What follows is that a large number of exportoriented enterprises will go bankrupt and the economy will nosedive into recession. Under such circumstances， a financial crisis is inevitable.

Some people hold that another financial crisis in Asia is unlikely to occur because， for one thing， many Asian economies have strengthened management of foreign debts since the 1997 crisis and their reliance on foreign debts has subsequently been reduced. Also， the depreciation of currencies across Asia in 1997 was caused by institutional short selling， while the current depreciation reflects fluctuation within the regions economies.

As a matter of fact， views of this stripe miss the point. No matter the causes underlying currency depreciation， a widespread depreciation that lasts for a long time will not only hamper the financial sector but also harm the real economy， causing corporate profits to shrink and leaving production unable to continue. In a case such as this， a crisis is the inevitable outcome. The continuing drop in the purchasing managers index of Asian economies in recent months is also ominous.

Therefore， the significant depreciation of currencies in Asia deserves the attention of economic departments and business leaders across the region. If there is a failure to handle this situation properly， we may find the distant nightmare of the 1997 crisis has become an all too tangible reality.