Kazakhstan’s currency lost more than 20 per cent of its value at the start of trading on Thursday, about an hour after the surprise announcement that the government would allow the currency to float freely.
One US dollar now buys 257.7 tenge, taking the Kazakh currency’s year-to-date plunge to nearly 30 per cent.
The Kazakh central bank scrapped the trading band for the tenge early on Thursday, just one day after widening the currency’s trading band and allowing the tenge to weaken 4.7 per cent to 196.88 per dollar, which was its lowest since at least 1994.
The oil-dependent central Asian country trades heavily with Russia and China and is being buffeted by the fall in the Russian rouble and crude oil prices.
The twin steps to alter how the Kazakh currency trades come within nine days of China devaluing the renminbi and changing how its daily reference rate is calculated, ostensibly to give more voice to markets.
Kazakhstan’s move followed in the footsteps of Vietnam, which has expanded the trading band for the dong twice since August 11. The decision to freely-float the tenge is a major move and could fuel worries of an unintended currency war sparked by China.
The steps by these and other emerging market countries have prompted expectations of further depreciations that could crimp financial solvency.
As developing countries in Asia respond to signs of rising capital outflows, there are concerns that currency weakness could expose financial vulnerabilities.
Figures from the Bank for International Settlements show that emerging market countries more than doubled their dollar-denominated debt in five years to $4.5tn.