Taiwan's inclusion on U.S. currency monitoring list 'could become routine'

Taipei, Nov. 16 (CNA) The Central Bank of the Republic of China (Taiwan) has said it expects Taiwan's inclusion on the United States' currency monitoring list to become a regular occurrence.

The local central bank's comments came as the U.S. Department of Treasury on Thursday (U.S. time) again placed Taiwan on its list of major trading partners that merit close attention to their currency practices and macroeconomic policies.

In a recent statement, Taiwan's central bank said communications channels between Taiwan and the U.S. were well founded to allow both sides to have a comprehensive view exchanges for a better understanding of each side's economic and foreign exchange policies.

Also included on the U.S. Department of Treasury's watchlist were China, Japan, South Korea, Singapore, Vietnam, and Germany, in accordance with the Omnibus Trade and Competitiveness Act of 1988 applied by the report, which analyzed the practices of Washington's major trading partners.

This is Taiwan's sixth straight appearance on the twice-yearly list, while South Korea returned to the list for the first time since November 2023.

None of Washington's major trading partners was named a currency manipulator, referring to those economies believed to be taking advantage of manipulation of the exchange rate between its currency and the U.S. dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade during the four quarters through June 2024, the U.S. Treasury said.

The U.S. Treasury report uses three criteria to determine which trading partners will be named as currency manipulators.

The three criteria include a bilateral trade surplus with the U.S. hitting at least US$15 billion and a material current account surplus accounting for at least 3 percent of an economy's gross domestic product (GDP).

The third is designed to assess whether an economy gets involved in persistent one-sided intervention in the foreign exchange market when net purchases of foreign currency are conducted repeatedly, in at least eight out of 12 months, with these net purchases making up at least 2 percent of its GDP over a 12-month period.

When an economy meets two of the three criteria, it will be automatically put on the watch list.

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

If an economy meets all three criteria, it will be named a currency manipulator.

The local central bank said Taiwan met the first two criteria as the country enjoyed a trade surplus of US$57 billion during the four quarters to June, and a surplus in its current account, which mainly measures the exports and imports of a country's merchandise and services, was equivalent to 14.7 percent of its GDP.

The central bank said that as Taiwan is an export-oriented economy and demand for Taiwan-made information and communications items from the U.S. market is robust, a trade surplus with the U.S. has been on the rise.

Since 2018, the local central bank said, Taiwan's increasing trade surplus with the U.S. largely reflected demand for gadgets in particular chips used in emerging technologies such as artificial intelligence applications.

Other factors included business opportunities created by remote working and schooling, and escalating trade tensions between Washington and Beijing, it added.

Therefore, the growth in trade surplus with the U.S. has had nothing to do with any currency manipulation, the local central bank said.

The central bank added that Taiwan's large current account surplus largely reflected the country's huge accumulated excess savings.

In a written report submitted to the Legislative Yuan earlier this week, the central bank suggested Taiwan expand its purchases of energy and agricultural goods as well as military items from the U.S. in a bid to reduce a trade surplus.

The U.S. Treasury said in the report that Taiwan should closely monitor non-bank financial sector risks, including foreign exchange risks, while foreign exchange intervention should be limited and allow currency movements in line with economic fundamentals.