The central bank yesterday called on local financial institutions to strictly adhere to foreign exchange rules and ensure that foreign capital inflows align with their declared purposes to help maintain stability in the foreign exchange market.
The call came after the local currency appreciated more than 10 percent earlier this month, raising concern that local exporters and life insurers would face substantial profit erosion.
The top monetary policymaker said it found that some foreign funds, intended for investment in Taiwan’s securities market, are parked in New Taiwan dollar-based demand accounts instead.
Photo: George Tsorng, Taipei Times
Central bank Governor Yang Chin-long (楊金龍) earlier partly blamed market speculation for facilitating the rise in the NT dollar against the greenback and said that the trend has nothing to do with Taiwan-US trade talks.
Further investigation revealed that some companies and individuals had converted foreign loans into the local currency without clear or legitimate use, moves that could add volatility to the local currency market, the central bank said, after pledging to take action against currency speculators.
The central bank reiterated the importance of compliance with foreign exchange rules for all transactions and that financial institutions should help monitor irregular activity.
Commercial banks should check the “real need” principle when processing foreign currency loans and NT dollar forward foreign exchange contracts, it said, adding that this requires verifying the necessity and legitimacy of each transaction.
For large-scale NT dollar conversions, banks must ensure that supporting documents match the declared purpose of the transaction, it said.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg. The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday. The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band. Heavy sales of the local dollar by
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
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