Financial institutions urged to adhere to foreign exchange regulations set by the central bank.
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In a fresh call to action, Taiwan's central bank is urging local financial institutions to abide by foreign exchange rules and ensure that foreign capital inflows align with their stated purposes. The appeal follows a noteworthy 10% surge in the local currency earlier this month, which has sparked concerns about profit erosion for exporters and life insurers.
The central bank governor, Yang Chin-long, has pointed out that some foreign funds, initially earmarked for investment in Taiwan's securities market, have wound up in New Taiwan dollar-based demand accounts instead. This clandestine practice risks adding volatility to the local currency market, potentially disrupting its stability.
Earlier, Governor Yang partly attributed the NT dollar's rise against the greenback to market speculation, asserting that the trend bears no connection to Taiwan-US trade talks. However, further investigation has revealed that some companies and individuals have cashed in on foreign loans by converting them to local currency, often without a clear or legitimate purpose. This covert activity can add fuel to the market's volatility.
In response, the central bank has affirmed the importance of abiding by foreign exchange rules in all transactions. They expect financial institutions to scrutinize foreign currency loans and NT dollar forward foreign exchange contracts, verifying every transaction's need and legitimacy. For large-scale NT dollar conversions, banks should ensure that supporting documents align with the declared purpose of the transaction.
This renewed emphasis highlights the central bank's commitment to stemming currency speculation, stabilizing the market, and ensuring adherence to foreign exchange regulations. By enforcing these measures, the central bank aims to create an orderly and well-regulated environment that helps preserve the economic health of Taiwan.
[1] Foreign funds parked in demand accounts: to avoid investment regulations and potentially create financial advantages or produce volatility[2] Converting foreign loans to local currency: to generate returns, avoid taxation, or engage in speculative activities that could harm the local currency market and impact exporters and insurers[3] Compliance with foreign exchange rules: to ensure that foreign capital inflows are used for their declared investment purposes and prevent illegal activities that could destabilize the market[4] Market stability: maintaining a stable exchange rate to safeguard the profits of exporters and insurers[5] Non-compliance with foreign exchange rules: creating unfair competition, market instability, and encouraging speculative activities
- Taiwan's central bank is urging local financial institutions to scrutinize foreign currency loans and NT dollar forward foreign exchange contracts, verifying every transaction's need and legitimacy, as non-compliance with foreign exchange rules could create unfair competition, market instability, and encourage speculative activities.
- Governor Yang has pointed out that some foreign funds, initially earmarked for investment in Taiwan's securities market, have wound up in New Taiwan dollar-based demand accounts instead, which could potentially be used for speculation and produce volatility in the local currency market.
- The central bank governor has asserted that some companies and individuals have cashed in on foreign loans by converting them to local currency for generating returns, avoiding taxation, or engaging in speculative activities that could harm the local currency market and impact exporters and insurers, subsequently adding fuel to the market's volatility.
