Central Bank Governor Perng Fai-nan (彭淮南) said yesterday that he hopes a currency swap deal with China can be signed by the end of this year — a prerequisite for including yuan-based assets into the nation’s foreign exchange reserves.
The currency swap quota between Taiwan and China should be set no lower than 360 billion yuan (US$58.28 billion), the quota currently set between China and South Korea, Perng added.
The currency swap deal is an arrangement in which the two sides would exchange specific amounts of different currencies, and a series of interest payments on those specific amounts are then exchanged.
“The central bank will try its best to get the deal signed as early as possible,” Perng said during a Finance Committee question-and-answer session at the legislature in Taipei.
Signing a cross-strait currency swap deal would help maintain sufficient yuan liquidity in Taiwan and protect the market from attacks by speculators, Perng said.
Meanwhile, the central bank would be able to purchase yuan-denominated bonds following the signing of a cross-strait currency swap deal, and could further add yuan-based assets to the nation’s foreign exchange reserves considering the currency’s liquidity and demand in Taiwan, he added.
Although the structure of the cross-strait currency swap deal was set up after the signing of a currency settlement mechanism between Taiwan and China, Perng said it may take some time for Chinese government agencies to review the deal.
China has already signed currency swap deals with 18 countries or regions, with the total swap quota standing at NT$1.816 trillion yuan, central bank data showed.
As for the local currency, Perng said the central bank never intentionally attempts to depreciate the New Taiwan dollar.
He was responding to doubts raised by various lawmakers that the bank had been depreciating the NT dollar for 15 years, seriously hurting the nation’s economy.
The central bank seeks dynamic stability for the NT dollar, Perng said, adding that the currency rate and consumer prices in Taiwan have remained steady over the past 15 years.
“The currency rate depends on market demand,” he added.
Citing internal data from the central bank, Perng said short-term capital inflows suspected to be “hot money” in Taiwan totaled between NT$160 billion (US$5.37 billion) and NT$170 billion, remaining at an acceptable level.
In Taipei trading yesterday, the New Taiwan dollar closed NT$0.053 lower at NT$29.815 against the US dollar.
Perng also said the central bank would maintain its credit control measures on the property market to curb speculative property transactions in Taiwan, and that it has seen improvements, such as lowering loan-to-value ratios for applicants and boosting interest rates for housing loans.
The central bank is scheduled to hold its quarterly board meeting on Thursday next week, with the policy interest rate — which stands at 1.875 percent — to be reviewed.