By all accounts, the nation's accumulation of foreign exchange reserves has slowed in recent months. What is not clear is whether this is a deliberate result of the government's management, or simply a consequence of capital outflows.
Central bank statistics released last Friday show that the nation's foreign exchange reserves increased by just 1.56 percent last year -- the lowest since 2000.
Most people in Taiwan would be unaware of this, because our newspaper headlines are dominated by squabbling politicians and sensationalism.
With US$270.311 billion in gold and widely accepted foreign currencies -- such as the US dollar, the euro, the pound sterling and the yen -- as of last month, Taiwan is officially the world's fourth-largest holder of foreign exchange reserves. However, accurate comparisons are difficult as governments release their data in different forms.
No one would dispute that the top three holders of foreign exchange reserves are China with US$1.433 trillion as of September, Japan with US$970.2 billion as of November and Russia with US$354.6 billion, also as of November.
As data released by the Reserve Bank of India on Friday showed that India's foreign exchange reserves totaled US$275.56 billion as of Dec. 28, it is only a matter of time before India replaces Taiwan in the hierarchy.
Foreign exchange reserves and an expanding trade surplus have long been viewed by the government as signs of success and national prosperity. But are massive foreign exchange reserves really that desirable?
Taiwan's central bank said in July that the nation's foreign exchange reserves could pay for 15.7 months of imports, far exceeding the world average of 7.5 months of imports. At the time, a central bank official said the nation's foreign reserves were "adequate."
One view is that ample foreign reserves enable a monetary authority to protect the value of its own currency and also serve as a safety net in case of a financial crisis or market volatility.
This is particularly true for Taiwan, as the nation is not a member of either the IMF or the World Bank and cannot rely on these Washington-based organizations or their member countries for financial aid.
The opposing view is that stockpiles of foreign reserves generate mediocre interest and benefit the nation less than real investments such as infrastructure construction projects.
Critics also warn that huge foreign reserves pose an inflation risk. Their reasoning is that, in a bid to boost exports, a central bank may have bought foreign currencies to keep its own currency relatively weak. This naturally creates stockpiles of foreign reserves, but at the same time invites asset bubbles and builds price pressure.
The ideal level of foreign reserves is almost impossible to gauge. But, with the Bureau of Foreign Trade estimating that the nation's trade surplus reached a record US$25.21 billion last year, it would be a cause for concern if foreign reserves began to stagnate not as a result of government policy, but in spite of it.
For Taipei, last year was a particularly dangerous period, with China stepping up coercive pressures on Taiwan amid signs of US President Joe Biden’s cognitive decline, which eventually led his Democratic Party to force him to abandon his re-election campaign. The political drift in the US bred uncertainty in Taiwan and elsewhere in the Indo-Pacific region about American strategic commitment and resolve. With America deeply involved in the wars in Ukraine and the Middle East, the last thing Washington wanted was a Taiwan Strait contingency, which is why Biden invested in personal diplomacy with China’s dictator Xi Jinping (習近平). The return of
The United States Agency for International Development (USAID) has long been a cornerstone of US foreign policy, advancing not only humanitarian aid but also the US’ strategic interests worldwide. The abrupt dismantling of USAID under US President Donald Trump ‘s administration represents a profound miscalculation with dire consequences for global influence, particularly in the Indo-Pacific. By withdrawing USAID’s presence, Washington is creating a vacuum that China is eager to fill, a shift that will directly weaken Taiwan’s international position while emboldening Beijing’s efforts to isolate Taipei. USAID has been a crucial player in countering China’s global expansion, particularly in regions where
Looking at the state of China’s economy this year, many experts have said that weak domestic demand and insufficient internal consumption might be its Achilles’ heel, with the latter being related to culture and demographics. Since Chinese President Xi Jinping (習近平) took office in 2013, he has been combating extravagance and corruption as well as rectifying a bad atmosphere. China expert Stephen Roach said the Chinese Communist Party’s (CCP) regulatory crackdown has been targeting Chinese tycoons, such as Alibaba Group Holding Ltd founder Jack Ma (馬雲), and opposing what the CCP defines as “excessively extravagant lifestyles,” such as playing too
With the manipulations of the Chinese Nationalist Party (KMT) and the Taiwan People’s Party (TPP), it is no surprise that this year’s budget plan would make government operations difficult. The KMT and the TPP passing malicious legislation in the past year has caused public ire to accumulate, with the pressure about to erupt like a volcano. Civic groups have successively backed recall petition drives and public consensus has reached a fever-pitch, with no let up during the long Lunar New Year holiday. The ire has even breached the mindsets of former staunch KMT and TPP supporters. Most Taiwanese have vowed to use