The New Taiwan dollar fell by 5.57 percent against the US dollar last year — its biggest annual decline since 2001. The currency depreciation is likely to continue this year, with both positive and negative implications for the nation’s economy.
Some pundits believe China’s slowing economy hurt Taiwan and dragged down the NT dollar last year, while others take issue with the US Federal Reserve’s monetary policy, which helps explain the depreciation of major Asian currencies versus the greenback last year, such as the yen (12.24 percent), ringgit (6.26 percent), Singaporean dollar (4.36 percent) and won (3.99 percent).
While it is possible that the NT dollar’s decline was also due to the central bank’s foreign exchange policy preference for currency weakness in view of the depreciation of the won and the yen versus the US dollar, the local currency’s weakness also underscored a long-standing dilemma for the country in which policymakers have failed to push forward structural reforms that would provide more leverage to the trade-dependent economy.
Therefore, even though foreign institutional investors bought a net total of NT$354.63 billion (US$11.18 billion) in Taiwanese shares on the main board last year and GDP was supported by a steady recovery in the world economy, alongside the nation’s sizable foreign exchange reserves, the NT dollar still failed to capitalize on those positive factors.
Instead, the local currency faced pressure from the surge in yuan deposits, the regulatory changes that increased life insurance companies’ overseas investments and a poor domestic investment environment that led to continuous capital outflows and created excess savings at home.
This year is set to be another tough year for most Asian currencies due to several global and domestic factors — including the US Federal Reserve’s expected tightening cycle, additional monetary easing measures in Japan and Europe, and an intensified currency war in the region to maintain export competitiveness and counter deflation — that will likely generate greater market volatility and weaken the region’s currencies further against the US dollar, albeit with different depreciation ranges.
For the NT dollar, the same negative factors are likely to persist this year, but the nation’s strong current-account surplus would help prevent the currency depreciating too much. On top of the central bank’s cautious foreign exchange policy, a benign inflation environment and the lack of domestic demand against weak government spending, plus political uncertainty ahead of next year’s presidential and legislative elections, all suggest that the NT dollar could sustain its weakness from last year.
After all, a depreciating NT dollar has a mixed impact on the nation’s economy. Economics textbooks say a weaker currency benefits exporters and boosts the nation’s economy, but it also pushes up annual import bills and might deal another blow to consumer spending, which constitutes a crucial element of the nation’s economic activity.
In reality, a weaker NT dollar cannot boost exports on its own. If there is no demand for Taiwanese goods and if the quality of our products is in doubt, overseas buyers will not buy them, regardless of whether Taiwanese exporters sell them cheaply.
Fears of an intensified currency war in the region to gain export share could mean the NT dollar might have to be devalued if the yen and won keep falling. While supporting depreciation in the local currency might help restore export competitiveness in the short term, the government and manufacturers must realize that this window of opportunity might well prove ephemeral and any delay to transform economic structure and upgrade industrial technology would severely undercut the nation’s competitiveness in the long term.
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
As Maldivian President Mohamed Muizzu’s party won by a landslide in Sunday’s parliamentary election, it is a good time to take another look at recent developments in the Maldivian foreign policy. While Muizzu has been promoting his “Maldives First” policy, the agenda seems to have lost sight of a number of factors. Contemporary Maldivian policy serves as a stark illustration of how a blend of missteps in public posturing, populist agendas and inattentive leadership can lead to diplomatic setbacks and damage a country’s long-term foreign policy priorities. Over the past few months, Maldivian foreign policy has entangled itself in playing