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Bank mulls steps to curb speculation

Bank mulls steps to curb speculation

Taiwan's central bank might intervene in the foreign exchange market to counter speculators and maintain the local currency's stability, the bank's governor said yesterday.
Foreign investors have about NT$150 billion of local currency deposits in Taiwan, which threatened to create an imbalance in the Taiwan dollar's supply and demand, Perng Fai-nan (彭淮南) reported to the Legislative Yuan's Finance Committee.
According to local regulations, that money should be used to buy stocks, but many investors have kept their holdings in cash to take advantage of the appreciating currency.
"If the money is not used to buy local stocks within one month after it's remitted into Taiwan, the central bank informs the regulatory agency to show our concern over its intention," said Perng, who was referring to the Taiwan Stock Exchange Corporation as the main regulatory body.
The new Taiwan dollar has appreciated nearly 10 percent against the U.S dollar since last October, from NT$33.435 six months ago to its NT$30.832 close yesterday, which Perng blamed on the influx of "short-term capital" or "hot money."
"If our trade surplus was very large, certainly our currency would rise," Perng said. "But Taiwan's trade surplus is only about US$700 million in the first two months of this year, so there's no reason for the Taiwan dollar to appreciate."
Given that the appreciation is due to the speculative and sudden influx of short-term capital, Perng pledged that the bank "would make adjustments to avoid large fluctuations in accordance with our given authority."
Confirming reports
While confirming a report in yesterday's Commercial Times that there were at least three foreign institutions holding large deposits of Taiwan dollars that had not bought stocks for between six months and one year, Perng said that the institutions had remitted their money abroad about one month ago under the central bank's "moral persuasion."
Perng said deposits of local currency in the hands of foreign investors has stayed steady at NT$150 billion, under what he described as the central bank's intensive and effective monitoring.
Perng also suggested that the central bank was able to keep the Taiwan dollar's exchange rate within a range of "dynamic stability."
"We can do it," he said, noting that the currency's fluctuation would be milder with central bank intervention than left to the whims of the market.
Despite Perng's confidence, most legislators were skeptical of the bank's powers of "moral persuasion," and some argued that the government needed to review its financial liberalization policies.
Legislator Julian Kuo, of the Democratic Progressive Party, said that foreign investors are currently allowed to buy Taiwan dollars without having to buy local shares first. As a result, he said, large amounts of money pour into Taiwan's foreign exchange market.
Kuo suggested that officials abolish the system allowing investors to immediately exchange their foreign currencies for Taiwan dollars, and require them to commit to purchasing shares first.
Taiwan had a mechanism that served as a buffer against hot money, the Qualified Foreign Institutional Investor system, but when it was canceled in October 2003, the local currency's exchange rate remained stable, Perng responded.
What drew the speculators, he said, was Morgan Stanley's decision to raise the weight of Taiwan's stock market in its international investment index.
Perng would not comment on whether the Taiwan dollar will continue to appreciate, for fear of influencing market expectations.
"Making foreign exchange forecasts is like tossing a coin. You get it right only half the time. Making forecasts involves a lot of risks. It can flip overnight," Perng said.


Updated : 2021-10-22 18:38 GMT+08:00