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Talk of the day -- FSC works with central bank to fight hot money

2010/10/15 12:24:22

As international hot money continues to flow into Asia, the NewTaiwan dollar rose further by NT$0.19 to close at a 27-month high ofNT$30.77 against the U.S. dollar Thursday.

In a bid to reduce speculation by foreign investors on theTaiwanese currency, the Financial Supervisory Commission (FSC) saidit has adopted a proposal by the central bank to designate U.S.dollars as the only acceptable cash collateral for bond borrowing.

The following are excerpts from local media coverage of theissue:

Economic Daily News:

FSC Chairman Chen Yuh-chang told the Legislative Yuan's FinanceCommittee that foreign funds remitted into Taiwan are mainly used forstock investment. However, the investors will sometimes use the moneyto buy fixed-income instruments after stock sales, a situation theFSC will closely monitor, Chen added.

On the cash collateral for bond borrowing, Chen said that onlyNew Taiwan dollars were acceptable in the past.

In August, however, U.S. dollars were added alongside the localunit as acceptable cash collateral, and the FSC and the central bankrecently decided that only U.S. dollars should be used.

According to information obtained by the central bank,international hot money for currency speculation is mostly hidden incurrent deposit accounts, the bond market and cash collateral forbond borrowing in the New Taiwan dollar.

The move to allow only U.S. dollars to be used is to try to barthe use of bond borrowing as a means of speculating on Taiwan'scurrency. (Oct. 15, 2010).

Commercial Times:

Also at the legislative meeting, Chen was asked by oppositionDemocratic Progressive Party Legislator Gao Jyh-peng to comment onthe possibility of imposing a hot money tax to curb the inflow ofspeculative capital, a policy recently adopted by Brazil.

In response, Chen said that while he did not oppose the proposal,cautious assessment should be conducted before imposing such a tax,which he said would inevitably impact foreign investment in the localbourse. (Oct. 15, 2010).

China Times:

The euro's climb above US$1.4 on the back of U.S. dollar weaknessspurred an appreciation of non-U.S. currencies Thursday.

After successfully breaking the critical NT$31 mark recently, theNew Taiwan dollar further soared by NT$0.19 to NT$30.77 against theU.S. dollar, the highest level in the past 27 months.

According to bank officials, it remains to be seen if the centralbank can block the local currency from surging past the NT$30.219mark. (Oct. 15, 2010).

(By Y.F. Low)