A huge increase in foreign-exchange interventions could lead to the US labeling Taiwan a currency manipulator, central bank Governor Yang Chin-long (楊金龍) said yesterday, but he added that the designation is unlikely to have any immediate negative impact on the nation’s export-dependent economy.
“It is possible that Taiwan might be listed as a manipulator,” Yang told lawmakers in Taipei as he delivered a report.
However, Yang said that the US’ criteria for labeling another economy a currency manipulator are no longer suitable, as the global economy has changed over the past year.
Photo: Chien Jung-fong, Taipei Times
Taiwan’s high-trade surplus with the US, one of the US Department of the Treasury’s three criteria, is due to strong demand from US companies for semiconductors, rather than any perceived unfair advantage Taiwan has gained from its currency intervention, Yang said.
“If they want to reduce our trade surplus with them, then we could just stop selling them our chips,” he told lawmakers. “But they need them.”
The central bank stepped up its intervention in markets in the second half of last year as it tried to stop the New Taiwan dollar from strengthening on the back of the booming economy and trade.
Although being listed as a manipulator by the US has no immediate or specific consequences, Yang said the central bank would discuss its interventions and trade surplus with US Treasury officials.
The central bank’s net currency purchases surged more than 600 percent to US$39.1 billion last year, according to the report Yang delivered to lawmakers.
That equals 5.8 percent of Taiwan’s GDP, according to Bloomberg calculations, well above the US Treasury’s 2 percent threshold. In 2019, the central bank reported net purchases of US$5.5 billion.
Yang said that capital inflows had slowed since mid-January.
The central bank reported conducting what it calls currency “smoothing” operations in January, but not in the past month, according to earlier statements.
The US Treasury has three criteria for listing an economy as a currency manipulator: a current-account surplus equivalent to 2 percent of GDP, a bilateral trade surplus of at least US$20 billion and “persistent, one-sided” foreign-exchange interventions worth at least 2 percent of GDP.
Taiwan was added to the currency watch list in the latest US report in December last year, but was not listed a currency manipulator.
The US cited the “persistently large” current account surplus of 10.9 percent of GDP in the year to June and a US$25 billion trade surplus with the US as reasons for its addition to the watch list.
Being designated a currency manipulator requires the US to engage with the perceived offender to address the imbalance.
Yang said the central bank would revise upward its economic growth forecast on Thursday next week, when the bank’s board of directors is set to meet at its quarterly meeting to decide if it is necessary to adjust the bank’s monetary policy.
The bank on Dec. 17 last year predicted the economy to expand 3.68 percent this year, while the Directorate-General of Budget, Accounting and Statistics on Feb. 20 upgraded the GDP growth forecast for this year to 4.64 percent, up from the previous forecast of 3.83 percent.
The nation’s economy has grown steadily and the inflation outlook remains mild, but Taiwan still faces potential external risks, such as the effectiveness of COVID-19 vaccines, fluctuations in global financial markets and uncertainties in the international trade environment, Yang said.
Additional reporting by staff writer
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