Mon, Nov 09, 2020 page6

• EDITORIAL: Get used to NT dollar’s strength

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  The continued appreciation of the New Taiwan dollar against the US dollar this year has triggered an outcry from export-oriented businesses

  Compared with 2018 and last year, the NT dollar’s appreciation has been more marked than that of the South Korean won, causing many in the traditional local industries to underperform their trading rivals, an issue one central bank board member addressed during the bank’s quarterly policymaking meeting on Sept. 17, according to the release of the meeting minutes on Oct. 29.

  On Oct. 6, the NT dollar rose above NT$29 against the greenback for the first time in more than nine years on the back of foreign fund inflows. On Friday, it briefly surpassed NT$28.5 and hit an intraday high of NT$28.492 before paring its gains to close at NT$28.876 — due to the central bank’s alleged interventions.

  However, the strength of NT dollar in the early Friday session caught many people off guard.

  The reason this exchange rate level is important is that it was the highest against the US currency during the terms of former central bank governor Perng Fai-nan (彭淮南), who retired in February 2018 after 20 years.

  The general market view during his term was that the NT$28.5 mark was the bank’s line of defense for the NT dollar exchange rate. Is that still the line of defense under central bank Governor Yang Chin-long (楊金龍)?

  Yang late last month said that it might become the new normal for the currency to trade above NT$29 against its US peer, and the rumored actions by the bank on Friday to pull the NT dollar back as soon as it hit that high could throw light on the issue. It made it clear that the bank still attaches great attention to it.

  With respect to the NT dollar’s strength this year, the bank on Friday said the nation’s exports grew by 2.4 percent year-on-year during the first nine months of the year, while most major Asian economies recorded annual export declines owing to soft demand amid the COVID-19 pandemic and US-China trade disputes.

  Moreover, the bank said the 4.26 percent appreciation of the NT dollar against the US currency this year has been moderate when compared with a more than 5 percent rise in the Chinese, Japanese, Philippine and eurozone currencies.

  These comments indicate that the bank is relatively comfortable with the NT dollar’s appreciation, and that because the bank does not see the currency as overvalued, it is more likely that it would be open to allowing the currency to appreciate — at a measured pace.

  Wu Meng-tao (吳孟道), an economist at the Taiwan Institute of Economic Research, on Saturday told the state-run Central News Agency that a stronger NT dollar is expected to continue once uncertainty created by the US presidential election is removed.

  In addition, as the spillover effect of the US monetary easing policy has a global impact, coupled with the impact of pandemic-induced monetary easing and ample market liquidity worldwide, the NT dollar, like some other non-US dollar currencies, would continue to face upside pressures, Wu said.

  The appreciation of the NT dollar will impact the nation’s exporters, and firms can adopt foreign exchange management to diversify or hedge their risks.

  In the face of restocking demand from Chinese firms and orders for products of emerging technologies and remote work tools from other countries, combined with gradual reopening in many economies, Taiwanese companies must upgrade themselves, develop new products and strengthen competitiveness to stay afloat.

  They cannot just rely on the depreciation of the NT dollar exchange rate: The world has changed as it enters a post-pandemic era.
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