Taipei: The Central Bank of the Republic of China (Taiwan) has affirmed that the guidance provided by the U.S. Treasury Department in its latest semi-annual currency report is in alignment with Taiwan's foreign exchange policies. The report, titled "Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States," keeps Taiwan on the currency watch list alongside eight other economies, including China, Japan, and Germany. Notably, no U.S. trading partner was labeled as a currency manipulator.
According to Focus Taiwan, the central bank released a statement following the U.S. Treasury report, indicating that the Treasury Department's perspective on Taiwan's forex policies aligns with its own. The central bank highlighted its approach of limited market intervention aimed at smoothing market volatility and emphasized the need to vigilantly monitor markets for potential forex risks.
The U.S. Treasury report underscores the importance of foreign exchange interventions being limited and allowing currency movements to align with economic fundamentals. The report also advises Taiwanese authorities to closely monitor non-bank financial sector risks, including those related to foreign exchange.
The U.S. Treasury utilizes three criteria to identify currency manipulators: a trade surplus with the U.S. of at least US$15 billion, a current account surplus of at least 3 percent of GDP, and persistent one-sided foreign exchange intervention, marked by net foreign currency purchases of at least 2 percent of GDP. In 2024, Taiwan met two of these criteria, maintaining its position on the currency watch list due to its trade surplus with the U.S. of US$74 billion and a current account surplus representing 14.2 percent of its GDP, despite reporting net foreign exchange sales of US$16 billion.
The central bank, referred to in the report by its former name, "Central Bank of China," stated that it generally respects a supply-demand mechanism to determine the Taiwan dollar's value. However, it reaffirmed its willingness to intervene in the market to mitigate volatility caused by significant short-term fund movements.
Despite Taiwan not being labeled as a currency manipulator, Darson Chiu, an economist at Tunghai University, expressed concern over the forthcoming semi-annual report scheduled for release in the latter half of 2025. Chiu's apprehensions arise from the central bank's active market intervention in May when it sought to moderate the Taiwan dollar's rapid appreciation against the U.S. dollar following a sharp 6.21 percent rise on May 2 and 3.
The Taiwan dollar's strength against the U.S. dollar persisted in May, and dealers noted that without the central bank's intervention, it would have appreciated further. The central bank acknowledged its significant U.S. dollar purchases in May to curb the Taiwan dollar's swift appreciation, which resulted in a US$10.12 billion increase in forex reserves, raising them to a record US$592.95 billion by the end of the month.
Chiu indicated that the next U.S. Treasury currency report would reveal whether the central bank's recent aggressive intervention breaches the U.S. department's criteria for persistent one-sided foreign exchange intervention.