Fri, Dec 31, 2010 - Page 1 News List

Financial regulator plans probe of ‘hot money’ flows

AFP and Bloomberg, TAIPEI

Taiwan’s financial regulator said yesterday it would set up a taskforce to inspect banks’ use of foreign cash inflows to check for foreign exchange speculation as the local currency hit a 13-year high against the US dollar.

The New Taiwan dollar rallied as much as 4.24 percent yesterday to its strongest level since October 1997 before paring most of its gains toward the close on suspected intervention by the central bank, according to traders who declined to be identified.

STRONG PERFORMANCE

The NT dollar rose 0.5 percent to close at NT$30.217 against the greenback. At one time, the currency jumped to a 13-year high of NT$29.08, according to Taipei Forex Inc. The currency has appreciated 7.1 percent this quarter, the best performance in Asia, and is up 5.48 percent for the year.

The Financial Supervisory Commission said it had instructed banks to provide information on the “end beneficiaries” of foreign funds as the NT dollar has risen about 5 percent against its US counterpart in the past two months.

It also comes after the central bank said that it interviewed the chiefs of two banks regarding recent “irregular trading” involving massive sales of foreign currencies at a particular time.

“Over the past few days, a small number of authorized foreign exchange banks have targeted specific times of the day to sell off large quantities of foreign exchange,” the central bank said in a statement on Wednesday.

The commission said it had set up a taskforce to carry out the checks and that it “supports the central bank in stabilizing the financial markets ... the taskforce will inspect banks to check the usage of foreign funds,” it said in a statement.

Citigroup Inc’s Taiwan unit said on Wednesday its trading in exchange-rate derivatives was being investigated by the central bank, though the bank yesterday declined to say whether its sales of foreign exchange are also being probed.

“Citibank agrees with the central bank’s effort in maintaining order in the foreign-exchange market and will cooperate accordingly,” a Citibank Taiwan Ltd (台灣花旗) official based in Taipei said in a telephone interview yesterday.

Governments of emerging markets are wary of the flows of so-called “hot money,” which is criticized for causing economic instability because of fears it can be pulled out of the country at any time.

Foreign speculative funds invested in Taiwan as traders bet on the appreciation of the local currency was estimated at around US$9.86 billion last month, according to central bank Governor Perng Fai-nan (彭淮南).

RECENT STEPS

Taiwan has already taken steps to limit the massive inflows with the commission, recently banning foreign funds from investing more than 30 percent of their portfolios in government bonds with maturities of a year or less.

On Monday, the central bank said local lenders’ holdings of non-deliverable forwards and options in the NT dollar will be limited to 20 percent of their positions in the local currency from about 33 percent previously, following similar restrictions in South Korea and China.

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