Central bank denies currency manipulation accusation

The Central Bank of the Republic of China (Taiwan) rejected Tuesday an accusation by an international business wire that said Taiwan is closer than China to acting as a currency manipulator.

The central bank made the comments after a Bloomberg report said Taiwan is sitting on a large trade surplus by taking advantage of a devalued Taiwan dollar.

The central bank said that Taiwan’s trade surplus with the United States stood at only US$10 billion a year, far smaller than China’s US$300 billion.

Based on the far smaller trade surplus, the central bank contended that Taiwan is far less likely to become a currency manipulator than China.

The report said that when U.S. President-elect Donald Trump accused China of manipulating the Chinese yuan to gain advantage in the global market, he may have got the target wrong, since Taiwan’s rising trade surplus and a growing surplus in its current account make the country “much better suited to bearing that damning label.”

Citing a report by Brad Setser, a senior fellow at the Council on Foreign Relations in New York, Bloomberg reported that although China’s trade surplus is higher than Taiwan’s, “measured as a share of economy — arguably a better way of judging whether a country is taking advantage of its trading partners — Taiwan’s overall surplus is more than six times the size of China’s.

The Bloomberg report added that Trump might have got things wrong when he accused China of manipulating its currency.

The Bloomberg report also cited William Cline, a senior fellow at the Peterson Institute for International Economics in Washington, as saying that the Taiwan dollar has been undervalued by more than 25 percent against the currencies of its major trading partners.

The central bank said that the facts in the Bloomberg report are incorrect.

According to the central bank, Taiwan is a small scale of an open economy, so its current account is more easily affected by volatility in global economic conditions. The central bank cited crude oil price fluctuations as an example, saying that such fluctuations have an impact on the country’s current account surplus.

In addition, the central bank said, Taiwan has large excessive savings, which account for 14 percent of its gross domestic product, while China’s excessive savings made up only 3 percent. The central bank said that a country like Taiwan, which has high excessive savings, tends to have a higher ratio of excessive savings to its GDP.

It said that the Bloomberg report’s use of only the trade surplus to judge whether a country is involved in currency manipulation is not objective.

While the Bloomberg report said that Taiwan’s foreign exchange reserves continued to rise due to its efforts to push down the Taiwan dollar’s value, the central bank said that the gains in Taiwan’s forex reserves came from returns on the central bank’s portfolio management rather than a move to buy into the U.S. dollar to prevent a stronger Taiwan dollar.

The central bank said it has completed a report in response to the Bloomberg accusation and will send the report to the relevant authorities to clarify the bank’s stance.

Source: Focus Taiwan News Channel

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