Wed, Oct 13, 2010 - Page 12 News List

No concern on currency: bank

APPRECIATING VALUE:The local currency has risen 3 percent so far this year, but it is feeling the pressure, as some other Asian currencies have appreciated 6 percent

By Ted Yang  /  Staff Reporter

The central bank said yesterday that there was no concern about whether the appreciation of the New Taiwan dollar is sufficient after the currency reached a two-year high against the greenback on Monday, adding that a decline in the NT dollar yesterday was the result of increased demand for the US dollar.

At its close in Taipei trading yesterday, the NT dollar fell NT$0.072, or 0.23 percent, to NT$31.07 on suspected central bank intervention, compared with a rise of 0.3 percent in the local currency on Monday to close at NT$30.998.

“The central bank respects the market mechanism,” Spencer Lin (林孫源), head of the central bank’s foreign exchange, told reporters yesterday.

He refused to say whether the NT dollar has appreciated enough on raging inflows of capital to Asia.

The NT dollar has risen 3 percent so far this year, yet other Asian currencies, including the Thai baht, Japanese yen and the Philippine peso, have appreciated by 6 percent over the same period.

STRICTER CONTROLS

Taiwan’s biggest trade rival, South Korea, also saw its currency gain 4 percent, adding to pressure on the appreciation of the NT -dollar.

Some Asian economies, such as Thailand, have recently taken steps to adopt stricter capital controls to stem hot money inflows on expectations the US Federal Reserve may expand its quantitative easing measures at its meeting next month.

HOT MONEY TAX

Asked whether the central bank will follow suit by imposing a “hot money” tax, Lin brushed aside the hypothetical question, saying “no comment.” However, he said that the central bank would let everybody know if it chooses to do that.

Meanwhile, the Ministry of Finance said that if foreign exchange authorities regard it -necessary to implement a Tobin tax to contain hot money, it would take the idea into consideration.

While some worried that -surging cross-border flows of speculative capital might lead to a repeat of the Asian financial crisis that gripped the region in 1997, the central bank said that it depends on the direction of capital flows.

“At that time, money was flowing out of Asia, but this time, it is flowing into Asia,” Lin said.

“When capital enters a market, supply of the US dollar will increase and when it flows out, demand for the greenback will increase,” he said.

ALLEGED BAN

The monetary regulator yesterday also rejected a report by the Chinese-language Economic Daily News that claimed the bank banned local banks from trading foreign currencies at 11am, when non-deliverable forward (NDF) prices are set, to maintain the stability of the exchange rate.

The dumping or purchasing of foreign currencies is reportedly a common practice among banks to make the exchange rate favorable to them, as the small range of manipulation causes no disruption to the market, which would return to normal trading after 11am.

NDF has become a popular instrument for companies to hedge their exposure to foreign currencies that are not internationally traded.

The profit or loss at the time of the settlement date is calculated by taking the difference between the agreed-upon exchange rate and the spot rate.

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