Unraveling Taiwan's Currency Surge: No US Pressure, Says Central Bank Head
Taiwan denies being labeled a 'manipulator'.
In a recent meeting, Central Bank Governor Yang Chin-long dismissed allegations of Taiwan being labeled a currency manipulator by the US Department of the Treasury.
"There's no need for Taiwan to be labeled a currency manipulator," Yang stated at a meeting of the legislature's Finance Committee in Taipei.
Taiwan's foreign exchange interventions did not exceed the 2 percent of GDP criteria set by the US, as per his claims.
Taipei Times
Yang's comments come after the New Taiwan Dollar (NTD) stabilized following its largest two-day gain since the 1980s. The rally ceased following Yang's plea to market commentators on Monday to stop speculating on the foreign exchange market.
The NTD had surged due to exporters rushing to sell the greenback, partly due to expectations that authorities would allow it to strengthen to help secure a trade deal with the US. The surge might have been amplified by life insurers - among Asia's biggest holders of US debt - seeking to hedge those holdings, which make up the bulk of their more than NT$23 trillion (US$759 billion) of foreign assets.
However, the US did not ask for a stronger NTD, and "overly strong" market expectations were driving the local currency, according to Yang. He also added that comments by his South Korean counterpart regarding US pressure on Asian currencies were poorly translated.
Reports from Yonhap News Agency cited Bank of Korea Governor Rhee Chang-yong stating that Asian currencies, including the won, "have been gaining ground partly due to the US administration's pressure on Asian countries to appreciate their currency." Nevertheless, the CBC maintains that such pressure does not exist.
Yang clarified that the strength of the NTD has little impact on the economy and cited previous instances when the currency reached NT$30 per US dollar.
"When you see sparks, you have to move quickly to put them out," he said.
Following the recent volatility, market expectations that the NTD would rise further have eased, and a more stable equilibrium between supply and demand for the currency has prevailed, Yang added.
The NTD fell 0.03 percent to close at NT$30.303 against the US dollar in Taipei trading on the day of his statement.
ING Bank NV chief Greater China economist Lynn Song stated, "Clearly, there's a lot of pressure on the [Central Bank of the Republic of China] given the recent volatility. The takeaway is that the CBC will likely continue efforts to prevent speculation from causing high volatility, but it also is not the sole decider of the currency trajectory given market forces."
"If we do see a weaker dollar environment persist, further strengthening of the Taiwan Dollar can’t be ruled out," Song added.
Taiwan's economy is growing, in part due to its position as a tech powerhouse, particularly in the semiconductor sector, which attracts significant foreign capital [3][4]. Other factors contributing to the NTD's surge include potential pressure from the US for Taiwan to allow its currency to appreciate, though the US has not explicitly asked for a stronger NTD [1].
Despite these factors, there is concern about future stability due to Taiwan's reliance on a single sector and potential risks such as a Fed hawkish turn or trade hostilities [4].
[1] Enrichment data: The US tariff disruptions have contributed to a sell-off of the US dollar and the corresponding appreciation of the NTD.
[3] Enrichment data: The introduction of high US tariffs has disrupted the US economy, leading to a sell-off of the US dollar and, consequently, a corresponding appreciation of the NTD.
[4] Enrichment data: Taiwan's position as a tech powerhouse, particularly in the semiconductor sector, has attracted significant foreign capital, further bolstering the NTD.
[5] Enrichment data: Taiwan's economic ascendancy has contributed to the appreciation of the NTD.
- Amid speculations of US pressure on Asian currencies, Taiwan's Central Bank Governor Yang Chin-long refuted claims that his country has been labeled as a currency manipulator and asserted that the US did not ask for a stronger New Taiwan Dollar (NTD).
- Following the NTD's largest two-day gain since the 1980s, Yang asked market commentators to stop speculating on the foreign exchange market, citing "overly strong" market expectations as the driving force behind the local currency's surge.
- Discrepancies in cross-strait trade negotiations might have influenced exporters to rush selling the greenback, contributing to the NTD's surge, with life insurers, among Asia's biggest holders of US debt, also seeking to hedge those holdings.
- Despite concerns about future stability due to Taiwan's reliance on a single sector and potential risks such as a Fed hawkish turn or trade hostilities, the economy's growth, strengthened by its position as a tech powerhouse, has been a key factor in the NTD's steady appreciation.
