Taiwan forex policy aligned with U.S. Treasury guidance: Central bank

Taipei, June 6 (CNA) The guidance the U.S. Treasury Department gave in its latest semi-annual currency report was consistent with Taiwan's foreign exchange policies, the Central Bank of the Republic of China (Taiwan) said Friday.

In the report on the "Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States," Taiwan stayed on the currency watch list with other eight economies -- China, Japan, Korea, Singapore, Vietnam, Germany, Ireland and Switzerland.

But no U.S. trading partner was named as a currency manipulator.

In a statement released after the U.S. Treasury report came out overnight, the central bank said the Treasury Department has similar views to the central bank's on Taiwan's forex polices.

The central bank was referring to its preference for limited market intervention to smooth market volatility and the need to closely watch markets for possible forex risks.

In the report, the U.S. Treasury wrote: "Foreign exchange intervention should be limited and allow currency movements in line with economic fundamentals.

"The (Taiwan) authorities should closely monitor non-bank financial sector risks, including foreign exchange risks," the U.S. Treasury added.

The U.S. Treasury report uses three criteria to identify currency manipulators: A trade surplus with the U.S. of at least US$15 billion; a current account surplus of at least 3 percent of GDP; and persistent one-sided foreign exchange intervention, marked by net foreign currency purchases of at least 2 percent of GDP.

Taiwan hit two of the three targets in 2024. Its trade surplus with the U.S. hit US$74 billion in 2024 and its current account surplus accounted for 14.2 percent of its GDP, but it had net foreign exchange sales of US$16 billion rather than purchases.

In meeting two of the three criteria set by the U.S. Treasury, Taiwan continued to be placed on the currency watch list, said the central bank, referred to in the report as the "Central Bank of China," the name it used from 1924 to 2007.

In principle, the central bank said, it respects a supply-demand mechanism to decide the Taiwan dollar's value, but it reiterated that it would jump into the market to ease volatility if short-term large fund outflows or inflows were sending ripples though the forex market.

Though Taiwan was not named a currency manipulator in the latest U.S. Treasury report, Darson Chiu (邱達生), an economist of Tunghai University, said he was worried about the next semi-annual report to be released in the second half of 2025.

Chiu's concern stems from the central bank's aggressive intervention in the forex market in May to slow down the pace of the Taiwan dollar's appreciation against the U.S. dollar, but only after the local currency rose a dramatic 6.21 percent on May 2 and 3.

The Taiwan dollar stayed strong against the U.S. dollar in May and without the central bank's intervention it would have appreciated further against the greenback, dealers said.

With the central bank admitting to its large purchases of the U.S. dollar in May to prevent the Taiwan dollar's rapid appreciation, Taiwan reported an increase of US$10.12 billion in forex reserves in May, the fifth largest rise, to push forex reserves to a new high of US$592.95 billion at the end of the month.

Chiu said the next U.S. Treasury currency report will show whether the central bank's recent aggressive intervention has stepped on the red line set by the U.S. department, referring to the third criteria of persistent one-sided foreign exchange intervention.