The central bank is increasingly concerned about the recent appreciation of the New Taiwan dollar amid continued capital inflows, and it is alleged that it intervenes in the foreign exchange market almost every day to prevent the local currency from strengthening too much.
On Thursday, the bank issued a statement quoting Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics, as saying that actions taken by some countries to curb the appreciation of their currencies were necessary because the quantitative easing policies known as “ultra-loose monetary policies” adopted by the US Federal Reserve and the European Central Bank (ECB) are causing nothing but instability in global foreign exchange markets.
The statement, which the central bank dubbed “reference materials,” also highlighted some tax measures taken by Brazil over the past year, including a decision on Monday to double a tax on foreign investors’ purchases of Brazilian bonds in a bid to deter financial speculation.
Concern over a rapid appreciation of the NT dollar can be clearly seen from the reference materials distributed by the central bank. However, perhaps more important is a message that the bank may be planning to curb currency speculation by imposing further controls on capital inflows.
Over the past one year, the central bank has on several occasions expressed its dislike of short-term “hot money” inflows and highlighted the necessity of capital controls. This time, however, in the context of a looming global currency war as the US gets tough on the yuan and the euro continues rising on the back of the declining US dollar and weak yuan, Taiwan’s monetary policymaker may be forced to take similar actions to those its Asian peers have taken to protect their export-reliant economies.
Even though Taiwan’s central bank can slow down the NT dollar’s appreciation, it cannot reverse the currency’s upward trend amid continued capital inflows to the region.
Most importantly, as long as central banks in developed economies like the Fed and the ECB continue their quantitative easing measures to weaken their currencies, boost their economic activities and improve employment conditions, their counterparts in the emerging nations will have to resort to market interventions or capital control measures to curb rapid appreciation of their respective currencies. Taiwan is no exception.
Ironically, no one is going to win in this devaluation race if nations all want to keep their currencies weaker. However, the fear of losing out to their competitors is only pushing every country into the currency depreciation race until the day when an international consensus is finally reached on what nations should and shouldn’t do to respond to the global economic and trade issues.
Whether this international consensus will or can be reached, only time will tell. Until then, the central bank will have to do what it thinks is appropriate to protect the economy, and the government has the responsibility of guiding excessive liquidity into production in the real economy.
However, the latest currency war concern does underline some of the structural weaknesses in the nation’s economy and call attention to the importance of domestic investment and consumption in addition to exports.
The government’s export-oriented policy provides a boost to the economy. However, its effect on employment and household income is not very impressive, while the growing disparity between rich and poor becomes ever more problematic. Taiwan has made clear its intention of addressing the currency issue, but what this country needs most is a strong will and determined actions to tackle the economy’s structural problems.
Could Asia be on the verge of a new wave of nuclear proliferation? A look back at the early history of the North Atlantic Treaty Organization (NATO), which recently celebrated its 75th anniversary, illuminates some reasons for concern in the Indo-Pacific today. US Secretary of Defense Lloyd Austin recently described NATO as “the most powerful and successful alliance in history,” but the organization’s early years were not without challenges. At its inception, the signing of the North Atlantic Treaty marked a sea change in American strategic thinking. The United States had been intent on withdrawing from Europe in the years following
My wife and I spent the week in the interior of Taiwan where Shuyuan spent her childhood. In that town there is a street that functions as an open farmer’s market. Walk along that street, as Shuyuan did yesterday, and it is next to impossible to come home empty-handed. Some mangoes that looked vaguely like others we had seen around here ended up on our table. Shuyuan told how she had bought them from a little old farmer woman from the countryside who said the mangoes were from a very old tree she had on her property. The big surprise
The issue of China’s overcapacity has drawn greater global attention recently, with US Secretary of the Treasury Janet Yellen urging Beijing to address its excess production in key industries during her visit to China last week. Meanwhile in Brussels, European Commission President Ursula von der Leyen last week said that Europe must have a tough talk with China on its perceived overcapacity and unfair trade practices. The remarks by Yellen and Von der Leyen come as China’s economy is undergoing a painful transition. Beijing is trying to steer the world’s second-largest economy out of a COVID-19 slump, the property crisis and
As former president Ma Ying-jeou (馬英九) wrapped up his visit to the People’s Republic of China, he received his share of attention. Certainly, the trip must be seen within the full context of Ma’s life, that is, his eight-year presidency, the Sunflower movement and his failed Economic Cooperation Framework Agreement, as well as his eight years as Taipei mayor with its posturing, accusations of money laundering, and ups and downs. Through all that, basic questions stand out: “What drives Ma? What is his end game?” Having observed and commented on Ma for decades, it is all ironically reminiscent of former US president Harry