What lessons did Asia learn from the 2013 taper tantrum?

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Asia's Preparedness for Federal Reserve Rate Hikes Following the 2013 Taper Tantrum

Asian central banks are actively strengthening their defenses in anticipation of potential Federal Reserve rate hikes, a response shaped by the significant market turmoil experienced during the 2013 "taper tantrum." This period, triggered by then-Fed Chairman Ben Bernanke's hints of winding down quantitative easing, led to capital being drawn away from emerging markets, increased borrowing costs, and financial market volatility across the region. The current build-up of foreign exchange reserves by countries like China, Malaysia, Indonesia, and Singapore, alongside India's record reserves, signifies a strategic effort to create a buffer against similar external shocks.
Rebuilding Foreign Exchange Reserves

Following the 2013 taper tantrum, a key lesson for Asian economies has been the necessity of robust foreign exchange reserves. China, for instance, has resumed purchases of US Treasuries, leading to its foreign exchange reserves growing by US$24.03 billion to US$3.054 trillion in May, the largest increase since April 2014. This strategic accumulation provides a financial cushion to manage potential capital outflows and currency depreciation that can accompany Fed tightening cycles.
Addressing Vulnerabilities of Dollar-Denominated Debt

The 1997-98 Asian financial crisis and the 2013 taper tantrum highlighted the particular vulnerability of Southeast Asian economies due to their reliance on US dollar-denominated debt serviced in local currencies, a phenomenon economists have termed "Original Sin." While not explicitly detailed in the provided context, the ongoing efforts to bolster reserves suggest a continued focus on mitigating the risks associated with managing such debt exposures in a tightening US monetary policy environment.
Leveraging Improved Economic Fundamentals

The current period of reserve accumulation is also supported by a generally improved economic landscape in Asia. Regional growth remains solid, with exports from countries like South Korea and India at multi-year highs, bolstered by global demand. The International Monetary Fund projects Asia's expansion to exceed 5 percent in 2017 and 2018, outperforming the global average. These stronger economic fundamentals provide a more stable base from which central banks can manage external monetary policy shifts.

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What lessons did Asia learn from the 2013 taper tantrum?

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