Central bank to communicate with U.S. after forex report

01/14/2020 10:16 PM
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The Central Bank of the Republic of China (Taiwan)
The Central Bank of the Republic of China (Taiwan)

Taipei, Jan. 14 (CNA) Taiwan's central bank said Tuesday that it will continue to communicate with the United States authorities after the latest foreign exchange report released by the U.S. Department of the Treasury a day earlier indicates Taiwan is close to the threshold of being placed on the currency monitoring list.

The central bank said Taiwan and the United States have already established a communications channel to ensure the U.S. side has a better understanding of Taipei's foreign exchange market.

In the latest semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, Taiwan stayed off the U.S. currency monitoring list, but the U.S. Treasury report said Taipei is "close to triggering key thresholds" to be put on the list.

Taiwan was removed from the currency monitoring list in October 2017, which the central bank attributed to its efforts to reduce intervention in currency markets.

However, in the latest foreign exchange report, the U.S. Treasury said Taiwan "may have engaged in substantial undisclosed foreign exchange intervention in the swap market," referring to an analytical report from the U.S. Council of Foreign Relations.

According to the U.S. Treasury report, Taiwan has conducted undisclosed foreign exchange intervention in the swap market with a value totaling about US$130 billion, and perhaps as much as US$200 billion.

In addition, the U.S. Treasury said Taiwan is the only major economy in Asia which does not publish data on the full details of its international reserves consistent with standards set by the International Monetary Fund.

In response, the central bank cited Governor Yang Chin-long (楊金龍) as saying that the bank has never engaged in any currency intervention through the swap market.

The central bank said it will continue to take advantage of the communications with the U.S. to make clear the bank's position on the foreign exchange market.

Since the U.S. Treasury has crystal clear definitions on currency manipulation, the central bank said, Taiwan has closely followed that criteria to ensure it stays off the monitoring list in the latest foreign exchange report.

The report uses three criteria to determine which of its trading partners will be named as currency manipulator nations.

The three are: a significant bilateral trade surplus with the U.S.; a material current account surplus; and involvement in persistent one-sided intervention in the foreign exchange market.

When an economy meets just one of the three criteria for two U.S. currency reports in a row, it is removed from the monitoring list.

The central bank has repeated that it always respects market mechanisms for currency value fluctuations, but when sudden massive foreign fund inflows occur in a short period of time and produce volatility in the local foreign exchange market, the bank will step in to maintain market order.

With more and more foreign funds entering the local market, the U.S. dollar fell against the Taiwan dollar in recent trading sessions.

On Monday, the greenback dropped below the NT$30 mark to close at NT$29.952, the lowest in 19 months, down 0.22 percent against the Taiwan dollar.

On Tuesday, the greenback continued its downtrend to close at NT$29.942 against the Taiwan dollar.

According to the latest semiannual foreign exchange market report, the U.S. Treasury reviewed and assessed the policies of 20 major U.S. trading partners.

After the review, the U.S. Treasury dropped China as a currency manipulator, saying Beijing has made "enforceable commitments" not to devalue the Chinese yuan and has agreed to release exchange-rate data.

China has been placed on the currency monitoring list along with nine other economies: Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, Switzerland, and Vietnam.

The latest currency market report came just before Washington and Beijing are scheduled to sign a phase one deal later this week to resolve their trade disputes.

(By Wu Po-wei, Pan Tzu-yu and Frances Huang)

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