Many businesses complained when the New Taiwan dollar appreciated sharply in the first quarter of this year. The appreciation was primarily a result of the central bank’s new laissez-faire approach.
For a long time, the NT dollar has remained weak due to the central bank’s policy of maintaining a low exchange rate by buying US dollars to keep the NT dollar weak.
Therefore, the US government pressured Taiwan to refrain from intervening in the currency market. The NT dollar’s rise when the central bank relaxed its controls confirmed that the bank had been intervening and marked the beginning of a more normalized currency market.
A weak NT dollar is good for export-oriented companies and allows the central bank to profit greatly from the exchange-rate difference.
Nevertheless, the cost probably outweighs the benefits.
First, when the NT dollar is prevented from appreciating, Taiwanese traveling abroad, consumers buying imported products and businesses importing energy and raw materials all have to pay more.
The public should ask why they are being forced to pay more in NT dollars to subsidize export companies. This effectively means that the government is taking from the poor to help the rich.
Second, the weak NT dollar is one link in the nation’s low-cost, low-price, low-profit and low-salary model. If this model really were good for Taiwan’s industrial economy, the nation would not have fallen into a high-income trap and be struggling to upgrade its industry, nor would its GDP growth rate be hovering between 1 and 2 percent.
By buying US dollars with NT dollars of equivalent value, the central bank causes an inflow of capital into the market due to the monetary multiplier effect of high-powered money.
Although low interest rates are beneficial, they could also lead to speculation and other problems. While the central bank might not be the main culprit behind skyrocketing real-estate prices, it has definitely played a part in shaping an economy in which young people cannot afford to buy a home.
The depreciation of NT dollar assets has also made Taiwanese more inclined to invest in foreign assets.
Therefore, the financial account in the nation’s balance of payments shows a large long-term deficit.
The yuan-linked target redemption forward financial derivative that has caused a near-disaster is also connected to the low value of NT dollar assets.
By buying foreign currency to keep the NT dollar weak, the central bank has accumulated a huge foreign-exchange reserve. While Taiwan does need a large foreign-exchange reserve as it is not a member of the IMF, it is too large and rarely used.
With its huge foreign-exchange reserves, the central bank can control the market, contrary to what a liberal economy should be. By keeping the exchange rate low, the bank is also doing the job of financial officers at commercial businesses.
The nation must not isolate itself from the international community. For the industrial economy to grow, the government must take the exchange rate into consideration in its daily decisionmaking. Foreign-exchange markets should be free from unnecessary and unreasonable government intervention, allowing market forces to freely shape the economy.
Thanks to pressure from the US, the foreign-exchange market will from now on become more normalized. This has once again highlighted that when it comes to reform, the US is a respected ally that is helping the nation improve, just as it did when Taiwan moved from authoritarianism to democracy.
Lu Shih-hsiang is an adviser to the Taipei Times.
Translated by Tu Yu-an
Late last month, Beijing introduced changes to school curricula in the Inner Mongolia Autonomous Region, requiring certain subjects to be taught in Mandarin rather than Mongolian. What is Chinese President Xi Jinping (習近平) seeking to gain from sending this message of pernicious intent? It is possible that he is attempting cultural genocide in Inner Mongolia, but does Xi also have the same plan for the democratic, independent nation of Mongolia? The controversy emerged with the announcement by the Inner Mongolia Education Bureau on Aug. 26 that first-grade elementary-school and junior-high students would in certain subjects start learning with Chinese-language textbooks, as
There are worrying signs that China is on the brink of a major food shortage, which might trigger a strategic contest over food security and push Chinese President Xi Jinping (習近平), already under intense pressure, toward drastic measures, potentially spelling trouble for Taiwan and the rest of the world. China has encountered a perfect storm of disasters this year. On top of disruption due to the COVID-19 pandemic, torrential rains have caused catastrophic flooding in the Yangtze River basin, China’s largest agricultural region. Floodwaters are estimated to have already destroyed the crops on 6 million hectares of farmland. The situation has been
In 1955, US general Benjamin Davis Jr, then-commander of the US’ 13th Air Force, drew a maritime demarcation line in the middle of the Taiwan Strait, known as the median line. Under pressure from the US, Taiwan and China entered into a tacit agreement not to cross the line. On July 9, 1999, then-president Lee Teng-hui (李登輝) described cross-strait relations as a “special state-to-state” relationship. In response, Beijing dispatched People’s Liberation Army (PLA) aircraft into the Taiwan Strait, crossing the median line for the first time since 1955. The PLA has begun to regularly traverse the line. On Sept. 18 and 19, it
Midday in Manhattan on Wednesday, September 16, was sunny and mild. Even with the pandemic’s “social distancing” it was a perfect day for “al fresco” dining with linen tablecloths and sidewalk potted palms outside one of New York City’s elegant restaurants. Two members of the press, outfitted with digital SLR cameras and voice recorders, were dispatched by The Associated Press to cover a rare outdoor diplomatic meeting on one of these New York streets. American diplomat Kelly Craft, Chief of the United States Mission to the United Nations, lunched in the open air with Taiwan’s ambassador-ranked representative in New York, James