Taiwan’s central bank finds ‘unusual trading strategies’
TAIPEI: Taiwan's central bank said on Wednesday it had found "unusual trading strategies" during inspections of banks' foreign exchange operations, and will seek an investigation, in its latest clampdown on what it sees as destabilising "hot money".
The bank had launched the inspections two days after tightening limits on trading in non-deliverable forwards (NDFs), the latest in a series of measures as it grapples with a Taiwan dollar that has risen to 13-year highs.
The central bank has waged a running battle for most of this year against surges in the domestic currency, prompted by concerns that a strong Taiwan dollar could destabilise the export-dependent economy and create asset bubbles.
In a statement late on Wednesday, it said "a small number of authorized foreign exchange banks have targeted specific times of the day to sell off large quantities of foreign exchange, inciting panic and disorder in the foreign exchange market".
The central bank said it had spoken to the heads of two banks and asked regulators for an investigation into the reasons behind the "unusual" trading strategy. It did not name the banks.
"Our inquiry has revealed that the funding for these transactions originates exclusively from the inward remittance made by certain foreign investors," it said, adding that the probe will seek the final beneficiaries behind those investors. Foreign capital inflows to Asia have risen sharply this year, attracted by better growth prospects and potential returns than in major developed economies, sparking defensive measures in many economies fearful of the volatility such flows bring.
Taiwan's central bank has long been among the most hawkish in fighting speculation, and has a track record of making adjustments to regulations and seeking information from banks as a way of exerting pressure and reminding banks of its presence. It had earlier this year conducted inspections of five or six banks' currency forwards businesses, but has stopped short of measures such as taxes on speculative money.
An official of the central bank's foreign exchange division said later on Wednesday that the two bank chiefs had been called in "for a cup of coffee", and had promised to remedy the issue. The official, who did not want his name to be used, said he did not see the need to talk to other banks at present.
It said in a statement earlier on Wednesday that the central bank had sought "to understand the bank's foreign exchange trading situation but had found nothing out of the ordinary." A dealer at a foreign bank in Taipei said the inspections will simply mean that banks will be even more punctilious in their daily reports on trading to the central bank. -PB News
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