The central bank yesterday said the New Taiwan dollar was not undervalued, because it had appreciated against the US dollar, the Thai baht and the South Korean won over the past 15 years. It also warned that an unstable exchange rate would undermine foreign investment.
With hot money flooding Asian markets, the monetary policy maker reiterated its tough stance to curb capital speculation just as central bank Governor Perng Fai-nan (彭淮南) is due to brief the legislature’s Finance Committee on the bank’s business today.
“The so-called ‘cheap Taiwanese currency’ is not factual,” the central bank said in a statement, citing statistics that showed the value of the NT dollar had strengthened substantially against major currencies since the Plaza Accord was signed in 1985.
The Plaza Accord was an agreement signed between France, West Germany, Japan, the US and the UK to depreciate the greenback. It was aimed at helping the US economy emerge from a serious recession that began in the early 1980s. The agreement resulted in a sharp rise in the Japanese yen, which prompted the NT dollar to rise.
Compared with the exchange rate at the end of 1985, the NT dollar rose 29.14 percent, 44.46 percent and 61.15 percent against the greenback, baht and won respectively, as of last Friday, the bank’s report said.
Moreover, the central bank said that the local currency had appreciated 5.63 percent, 10.19 percent and 25.09 percent against the US dollar, euro and won respectively, since the end of 2007 when the US sub-prime mortgage crisis broke.
“Capital movements have become the major factor in deciding the exchange rate,” the bank said in the report, adding that excessive volatility of short-term capital speculation would often disturb the domestic economy and financial stability.
At present, there are 6,000 foreign accounts investing in the local bourse, but 20 of them account for 40 percent of the total foreign capital flows and the amount of funds traded by these accounts make up 63 percent of the local foreign exchange trading, the report said.
The central bank stressed that it would continue to “maintain the foreign exchange market order” if any irregular or seasonal factors are found to lead the exchange rate to overshoot and in turn impact the local economic and financial stability.
On Oct. 7, the monetary policymaker quoted Nobel laureate economist Joseph Stiglitz as saying that a “flood of liquidity” from the US Federal Reserve and the European Central Bank was causing instability in foreign exchange markets, forcing Japan and Brazil to defend their exporters.
Meanwhile, the bank said that an appreciation of the NT dollar not only failed to encourage foreign companies to invest in Taiwan, but also expedited industrial migration.
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