Taiwan and Thailand might be added to the US watch list for currency manipulation after meeting all of the criteria set out by the US Department of the Treasury, UBS Group AG has said.
A country is included in the monitoring list if it fulfills two of three benchmarks: a trade surplus with the US of at least US$20 billion; a current-account surplus of at least 2 percent of GDP; and persistent, one-sided intervention in the currency equivalent to 2 percent of GDP in six months of a year.
Taiwan, which dropped off the US monitoring list in 2017, and Thailand now fulfill all three criteria, UBS’ analysis shows.
Neither were included in the department’s January findings.
“Thailand and Taiwan crossed the US$20 billion trade surplus mark to make it to the list,” UBS strategists, including Rohit Arora and Teck Quan Koh, wrote in a report on Tuesday. “We expect Thailand’s inaugural mention in the upcoming report, with a non-negligible possibility of Taiwan’s re-mention.”
In Taipei, central bank Governor Yang Chin-long (楊金龍) has said that Taiwan might appear on the watch list if the US keeps its criteria.
“Our principle of when to step in forex market does not change, that is when there is huge fund flow in or out in short period of time. The central bank will maintain the stability of Taiwan dollar,” he said last month.
Bank of Thailand (BOT) Governor Veerathai Santiprabhob said on Tuesday last week that he is not concerned about the upcoming report, as the nation has explained its foreign-exchange policy to the department.
The baht has moved in both directions against the US dollar and actually weakened from last year, he said.
He added that the BOT only steps in when there are excessive swings, as it uses a managed float system and the department understands that.
The US dropped its designation of China as a currency manipulator in its last report, noting the world’s second-biggest economy had made “enforceable commitments” not to devalue the yuan.
Switzerland was added to the watch list, while China, Japan, South Korea, Germany, Italy, Ireland, Singapore, Malaysia, Vietnam were retained.
About 75 percent of central banks have engaged in “persistent FX intervention,” the UBS report found.
Asian nations made up about 60 percent of the economies under currency surveillance by the department, the strategists said.
“Even though we think no country will be labeled a manipulator, the report matters symbolically for FX markets,” the UBS strategists wrote.
“A persistent one-sided intervention means authorities may have to focus on current-account surplus recycling flows or structural reforms to avoid any unintended penalties over the medium term,” the strategists wrote.
Here are some of UBS’ other findings:
‧Taiwan’s inclusion in the list might be a “close call” on the nation’s strengthening currency and transparent disclosures around forwards positions.
‧The BOT is estimated to have intervened 10 out of 12 months in the currency market over the course of last year, with net foreign-exchange purchases representing 3.5 percent of GDP.
‧COVID-19 disruption in Thailand’s tourism sector and impact on current-account might curb the BOT’s opportunities to buy US dollars over next six to nine months.
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