Under a third round of quantitative easing (QE3) announced Thursday to boost the U.S. economy, the U.S. Federal Reserve said it will spend US$40 billion per month on buying mortgage-backed securities for as long as it deems necessary.
In addition, the Feb is expected to buy US$85 billion in bonds per month and keep interest rates at "exceptionally low levels" until mid-2015.
The launches of QE1 and QE2 led to a sharp appreciation of the currencies of emerging economies, with the Taiwan dollar rising 4.43 percent and 6.43 percent, respectively, during those two periods.
Based on past experience, Asian currencies will inevitably face appreciation pressure following the start of QE3. This means that the Taiwan dollar will remain at relatively high levels, which is extremely unfavorable to Taiwan's efforts to boost exports.
With Taiwan's export performance already being the worst among Asia's four little dragons, the problem will have a much bigger impact on Taiwan than on other Asian countries.
Although QE3 has given a boost to global and domestic stock markets, Taiwan should not get carried away by the transient prosperity and euphoria.
The government and private sectors in Taiwan should work to enhance the competitiveness of the country's industry and deal seriously with the long-term impact of QE3. (Editorial abstract -- Sept. 15, 2012)
(By Y.F. Low)