Fri, Oct 05, 2018 - Page 12 News List

Ample liquidity, FX reserves hold up local currency

By Crystal Hsu  /  Staff reporter

Thanks to ample liquidity and foreign-exchange reserves, the New Taiwan dollar has proven resilient, despite an emerging-market rout that has played havoc with the Indian rupee, Indonesian rupiah and other currencies, central bank Governor Yang Chin-long (楊金龍) said yesterday.

“The central bank’s foreign-exchange reserves are sufficient to prevent a financial crisis, as they did in 2008, when Taiwan emerged from the global financial storm unscathed,” Yang told the legislature’s Finance Committee.

Lawmakers across party lines voiced unease about an escalating US-China tariff row and steep currency depreciations that have plagued India, Indonesia, the Philippines, Pakistan and Sri Lanka in Asia. Turkey, Argentina, Brazil, Ukraine and Egypt have also been hit hard.

Interest rate hikes by US Federal Reserve have helped facilitate capital flights from emerging markets, Yang said, citing the Argentine peso, which has plunged 50 percent this year, while the Turkish lira has tumbled 35 percent.

While Asia has fared better, the rupee has weakened 12 percent and the rupiah has softened by 9 percent, he said.

The NT dollar is relatively stable due to sufficient liquidity and supply of foreign-exchange reserves, Yang said.

Taiwan had US$459.88 billion in foreign-exchange reserves in August, an increase of US$1.38 billion from July, despite net capital outflows, central bank data showed.

The local currency yesterday closed down 0.4 percent at NT$30.792 in Taipei trading against the US dollar, central bank data showed.

The governor dismissed worries over asset losses linked to a weakening euro or yuan, saying the bank maintains a flexible and dynamic strategy to manage its currency reserves.

The greenback makes up the largest chunk at more than 70 percent, while the euro and the yuan account for about 5 percent each, Yang said, adding that other currencies take up smaller shares.

“Some would argue it is wise to buy on corrections,” Yang said, referring to the yuan in the wake of trade disputes with the US.

Although the central bank incurred NT$1 trillion (US$32.48 billion) in mark-to-market losses in foreign-exchange reserves last year, much of that has returned to positive territory this year, he said.

A small and open economy, Taiwan would suffer if the tariff row is protracted and takes a toll on global trade flows, although its impact seems to be limited and moderate, Yang said.

The trade drama could last another six months to two years as neither side appears willing to budge, he said.

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