Taiwan sits out forex intervention to duck Trump blast
TAIPEI: Taiwan’s central bank, fearful of being labelled a currency manipulator by US President Donald Trump, has pulled back on intervention to weaken the Taiwan dollar, making it Asia’s second bestperforming currency in 2017.
The effects of Trump’s pronouncements that some central banks are manipulating their currencies have been quite toxic. Source
The currency has risen 5 per cent so far this year, giving the island’s stock market a boost, but knocking its fourth- quarter balance of payments to a five-year low and hammering its insurers, which are heavily invested overseas.
A central bank official told Reuters the currency movement was directly related to the bank not intervening so much in the foreign exchange markets.
“The central bank wants to signal to the United States that it does not manipulate Taiwan’s currency,” the official said.
The bank’s governor, Perng Fai- nan, declined to comment when asked on Thursday if the currency’s strength was linked to the bank’s nervousness that Trump might label it a manipulator.
Trump has criticised especially China, Japan and Europe for policies he claims artificially weaken their currencies and make their exports more competitive.
His administration has said it will analyse the currency practices of major trading partners, and the US Treasury is required to publish a report on these practices in midApril.
After any declaration that a country manipulates its currency, the Treasury will try to negotiate a resolution, but the process could result in punitive tariffs on that country’s goods.
Taiwan already meets two of the three US criteria to be labelled a manipulator, including intervention to weaken the currency.
An upcoming new iPhone model, for which Taiwan makes many of the components, is expected to boost its trade surplus with the United States to levels that could provoke a reaction.
“The effects of Trump’s pronouncements that some central banks are manipulating their currencies have been quite toxic,” said a vice- president at Mega Financial Holding’s banking arm, which is Taiwan’s biggest staterun bank operating in overseas markets.
The effects have been particularly toxic for Taiwan’s insurers, which have been hit with a T$14 billion (US$455 million) loss on the foreign exchange risk reserves they hold to contain currency volatility.
Their currency reserves declined by a third in January to their lowest in at least a year and are set to plunge further.
“The insurers must manage their forexrisk...We’recloselymonitoring the impact,” said Thomas Chang, deputy director general of the insurance regulator.
For now, the insurers say they are hedging the risks and riding out the immediate storm.
“Insurance firms tend to invest in the long term, for 15-20 years. Short term volatility is unavoidable. Our team has adjusted accordingly,” said Lin Chao-ting, an executive vice president of privately owned Cathay Life Insurance, which has more than US$161 billion in assets. — Reuters