Communication with the US Department of the Treasury remains smooth after Washington released its latest foreign exchange report, which kept Taiwan on its monitoring list, but stopped short of labeling any major trading partner a currency manipulator, the central bank said yesterday.
Taiwan met only two of the three criteria in the Report to Congress on Macroeconomic and Foreign Exchange Policies of Major Trading Partners, which is used by the US to assess currency practices, citing a large bilateral trade surplus and a high current account surplus, while its foreign exchange intervention did not breach the Treasury’s threshold, the central bank said.
The bank reported net purchases of foreign exchange of US$5.9 billion for the four quarters ending in June last year, or about 0.7 percent of GDP, it said, quoting the report.
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Taiwan’s persistently high current account surplus reflects structural factors, including a high savings rate linked to an aging population and relatively strict fiscal discipline, rather than exchange rate misalignment, the bank said.
The sharp rise in Taiwan’s trade surplus with the US in the past few years has been driven by robust demand for Taiwanese-made technology products, it said.
Addressing US concerns over market intervention, the bank said its foreign exchange operations have become increasingly symmetric since 2021, aimed at smoothing excessive volatility in either direction rather than influencing the currency’s long-term trend.
It has also enhanced transparency, with semi-annual disclosures of intervention data starting in 2020 and having committed in a joint statement with the Treasury in November last year to release the data at least quarterly, it said.
The central bank said that measures — including restrictions on foreign investors’ use of fixed-income products, stock instruments and inverse exchange-traded funds, as well as requirements that inward remittances be used for domestic securities investment — helped curb speculative activity in the New Taiwan dollar.
It said it would continue to engage constructively with the Treasury on macroeconomic and exchange rate issues, while maintaining a market-determined exchange rate and safeguarding financial stability.
The central bank’s remarks came after the Treasury said on Thursday that it was boosting scrutiny of the foreign exchange practices of major trading partners, including their interventions to resist depreciation and appreciation against the US dollar, but it did not accuse any major trading partner of currency manipulation.
In its latest semi-annual currency report, the Treasury said no major trading partner met all three criteria for enhanced analysis of currency practices during the second half of 2024 and the first six months of last year.
The Treasury added Thailand to its “monitoring list” of countries warranting close attention due to the growth of the Asian country’s global current account surplus and its trade surplus with the US.
The addition took the monitoring list to 10 economies, with China, Japan, South Korea, Taiwan, Singapore, Vietnam, Germany, Ireland and Switzerland also on the list.
The report has traditionally focused on whether countries are engaging in one-sided currency intervention or other manipulation to resist appreciation against the US dollar to keep their exports cheaper.
The Treasury said it “is now monitoring more broadly the extent to which economies that choose to smooth exchange rate movements do so to resist depreciation pressure in the same manner as they do to resist appreciation pressure.”
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