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US Treasury keeps close eye on Taiwan for its currency manipulator behavior

Taiwan's regular market interventions, surging trade surpluses meet currency manipulator threshold

New Taiwan dollars (Getty Images photo)

New Taiwan dollars (Getty Images photo)

TAIPEI (Taiwan News) — Taiwan is likely to stay on the U.S. Treasury’s foreign exchange watch list when the next report is released, marking continued scrutiny of the sustained surge in the country’s trade surplus.

The U.S. decided not to label Taiwan a currency manipulator in this year’s April report, despite its trade surpluses and intervention in currency markets meeting the thresholds for that label, according to a Bloomberg report.

Monthly shipments from Taiwan hit new records four times in 2021, pushing up the current account surplus. The next U.S. foreign exchange report will look at the period between the beginning of July 2020 and the end of June 2021, a period when that surplus was the highest on record compared to the size of Taiwan’s economy.

The U.S. Treasury said in April it would “commence enhanced bilateral engagement” with Taipei over the issue of currency manipulation. Taiwan’s central bank pushed back against the accusation, denying it sought to gain an unfair trade advantage. Even so, the central bank has slowed its daily interventions in currency markets and the local dollar has gained 1.3% so far this year versus the U.S. dollar, making it Asia’s top performer.

As for net foreign-exchange purchases, the third criteria for currency manipulation, Taiwan’s central bank purchased $US35.2 billion (NT$983.14 billion) in the second half of 2020, already much higher than the 2% of GDP criteria set by the U.S. The relevant data for 2021 will be released next year.

“It is likely the central bank will allow more flexibility in the Taiwan dollar and refrain from smoothing the FX market as frequently as before,” said Gary Ng, Hong Kong-based senior economist with Natixis SA, adding the currency could have more upside now than in the past, per Bloomberg.

Other economists don’t see the listing as so important.

Taiwan will most likely stay on the watch list, but the report is just a short-term distraction, and there are other factors that influence foreign exchange more directly, according to Christopher Wong at Malayan Banking BHD in Singapore. The strong export performance will support the economy and the Taiwan dollar, he said.

Updated : 2021-09-18 08:57 GMT+08:00