Many businesses complained when the New Taiwan dollar appreciated sharply in the first quarter of this year. The appreciation was primarily a result of the central bank’s new laissez-faire approach.
For a long time, the NT dollar has remained weak due to the central bank’s policy of maintaining a low exchange rate by buying US dollars to keep the NT dollar weak.
Therefore, the US government pressured Taiwan to refrain from intervening in the currency market. The NT dollar’s rise when the central bank relaxed its controls confirmed that the bank had been intervening and marked the beginning of a more normalized currency market.
A weak NT dollar is good for export-oriented companies and allows the central bank to profit greatly from the exchange-rate difference.
Nevertheless, the cost probably outweighs the benefits.
First, when the NT dollar is prevented from appreciating, Taiwanese traveling abroad, consumers buying imported products and businesses importing energy and raw materials all have to pay more.
The public should ask why they are being forced to pay more in NT dollars to subsidize export companies. This effectively means that the government is taking from the poor to help the rich.
Second, the weak NT dollar is one link in the nation’s low-cost, low-price, low-profit and low-salary model. If this model really were good for Taiwan’s industrial economy, the nation would not have fallen into a high-income trap and be struggling to upgrade its industry, nor would its GDP growth rate be hovering between 1 and 2 percent.
By buying US dollars with NT dollars of equivalent value, the central bank causes an inflow of capital into the market due to the monetary multiplier effect of high-powered money.
Although low interest rates are beneficial, they could also lead to speculation and other problems. While the central bank might not be the main culprit behind skyrocketing real-estate prices, it has definitely played a part in shaping an economy in which young people cannot afford to buy a home.
The depreciation of NT dollar assets has also made Taiwanese more inclined to invest in foreign assets.
Therefore, the financial account in the nation’s balance of payments shows a large long-term deficit.
The yuan-linked target redemption forward financial derivative that has caused a near-disaster is also connected to the low value of NT dollar assets.
By buying foreign currency to keep the NT dollar weak, the central bank has accumulated a huge foreign-exchange reserve. While Taiwan does need a large foreign-exchange reserve as it is not a member of the IMF, it is too large and rarely used.
With its huge foreign-exchange reserves, the central bank can control the market, contrary to what a liberal economy should be. By keeping the exchange rate low, the bank is also doing the job of financial officers at commercial businesses.
The nation must not isolate itself from the international community. For the industrial economy to grow, the government must take the exchange rate into consideration in its daily decisionmaking. Foreign-exchange markets should be free from unnecessary and unreasonable government intervention, allowing market forces to freely shape the economy.
Thanks to pressure from the US, the foreign-exchange market will from now on become more normalized. This has once again highlighted that when it comes to reform, the US is a respected ally that is helping the nation improve, just as it did when Taiwan moved from authoritarianism to democracy.
Lu Shih-hsiang is an adviser to the Taipei Times.
Translated by Tu Yu-an
A series of strong earthquakes in Hualien County not only caused severe damage in Taiwan, but also revealed that China’s power has permeated everywhere. A Taiwanese woman posted on the Internet that she found clips of the earthquake — which were recorded by the security camera in her home — on the Chinese social media platform Xiaohongshu. It is spine-chilling that the problem might be because the security camera was manufactured in China. China has widely collected information, infringed upon public privacy and raised information security threats through various social media platforms, as well as telecommunication and security equipment. Several former TikTok employees revealed
At the same time as more than 30 military aircraft were detected near Taiwan — one of the highest daily incursions this year — with some flying as close as 37 nautical miles (69kms) from the northern city of Keelung, China announced a limited and selected relaxation of restrictions on Taiwanese agricultural exports and tourism, upon receiving a Chinese Nationalist Party (KMT) delegation led by KMT legislative caucus whip Fu Kun-chi (傅崑萁). This demonstrates the two-faced gimmick of China’s “united front” strategy. Despite the strongest earthquake to hit the nation in 25 years striking Hualien on April 3, which caused
In the 2022 book Danger Zone: The Coming Conflict with China, academics Hal Brands and Michael Beckley warned, against conventional wisdom, that it was not a rising China that the US and its allies had to fear, but a declining China. This is because “peaking powers” — nations at the peak of their relative power and staring over the precipice of decline — are particularly dangerous, as they might believe they only have a narrow window of opportunity to grab what they can before decline sets in, they said. The tailwinds that propelled China’s spectacular economic rise over the past
President-elect William Lai (賴清德) is to accede to the presidency this month at a time when the international order is in its greatest flux in three decades. Lai must navigate the ship of state through the choppy waters of an assertive China that is refusing to play by the rules, challenging the territorial claims of multiple nations and increasing its pressure on Taiwan. It is widely held in democratic capitals that Taiwan is important to the maintenance and survival of the liberal international order. Taiwan is strategically located, hemming China’s People’s Liberation Army inside the first island chain, preventing it from