Forex reserves hit new high amid rare admission of market intervention

07/07/2020 11:52 AM
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Taipei, July 7 (CNA) Taiwan's foreign exchange reserves hit a new high at the end of June, pushed higher by central bank intervention in the forex market to limit the Taiwan dollar's appreciation.

Taiwan's forex reserves rose US$4.18 billion from a year earlier to US$488.69 billion as of the end of June, setting a new high for a 13th consecutive month, according to central bank data.

In addition to the central bank's forex market intervention, in which it bought dollars to reduce the value of the Taiwan dollar, the increase reflected additional returns on the bank's foreign currency investments, the bank said.

The appreciation of other currencies, such as the Australian dollar, in the central bank's investment portfolio also contributed to the rise when those assets were converted into U.S. dollars, the bank said.

Henry Yen (顏輝煌), head of the bank's Foreign Exchange Department, said the U.S. Federal Reserve's quantitative easing policy has increased liquidity, prompting hot money to flow into the region.

Yen said those foreign fund inflows have created wild fluctuations in currency markets, and Taiwan's central bank had to take action to stabilize the Taiwan dollar, which rose 1.24 percent against the greenback in June even with the bank's intervention.

In July, the Taiwan dollar continued to rise, and observers believe the central bank is continuing to intervene, but the local currency still gained an additional 0.37 percent against the U.S. dollar from July 1-6.

Yen said Taiwan's central bank was not the only one in the region to intervene in currency markets in June, citing other countries like India as doing the same thing.

"It is the duty of the central bank to keep the local forex market stable by fending off external disruptions," Yen said.

It was a rare disclosure by the central bank of market intervention.

Based on figures provided by the central bank, Taiwan's forex reserves at the end of June remained the fourth largest in the world, trailing China's US$3.1 trillion, Japan's US$1.30 trillion and Switzerland's US$847.7 billion as of the end of May.

India's total reserves were listed by the Reserve Bank of India at US$506.84 million as of June 26, but they include gold holdings that Taiwan's central bank does not include in its forex reserve figures.

India's foreign currency assets totaled US$467.60 million, trailing slightly behind Taiwan.

Meanwhile, the value of foreign investor holdings of Taiwanese stocks, bonds, and Taiwan dollar-denominated deposits as of the end of June rose US$36 billion from a month earlier to US$428.4 billion, helped by a 6.21 percent rise in the Taiwan Stock during the month.

Those holdings were equal to 88 percent of Taiwan's total foreign exchange reserves as of the end of June, up from 81 percent at the end of May.

The central bank has said it will maintain ample forex reserves to maintain stable financial markets at home and protect against the contingency of foreign institutional investors suddenly moving funds out of the country.

(By Pan Tzu-yu and Frances Huang)

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