TAIPEI (Taiwan News) — Taiwan's Central Bank responded on Friday to claims by The Economist that Taiwan keeps its currency too cheap on purpose and builds up financial risks.

The British journal reported Thursday that the Taiwan dollar is heavily undervalued and has driven the country’s trade surplus to record levels. It noted Taiwan's goods-trade surplus in October reached about 31% of GDP.

It added the cheap currency drives up import costs and leaves households with less money to spend. It said this causes Taiwan to save too much and consume too little.

In response, Taiwan's Central Bank countered that exchange rates move on supply and demand in the market. The bank said no single product can decide whether a currency is cheap or expensive. 

“The Economist has written in the past that the Big Mac Index has limits and can be misused,” the bank pointed out. Taiwan's financial authority also said foreign capital flows now dwarf trade flows, so simple purchasing-power comparisons no longer work.

The Big Mac Index is a tool that compares the price of McDonald's Big Mac in different countries to determine if a currency is cheap or expensive. The Economist used this index to argue that the Taiwan dollar is heavily undervalued and claimed that Taiwan purposefully keeps its currency weak.

The Commercial Times reported Saturday that using a single product to judge currency value produces the wrong result. It quoted a former financial official and said the Taiwan dollar would look overvalued if the index used iPhone prices instead.

The article also noted that US trade officials could put pressure on Taiwan to let the currency rise. It added that this risk will stay high because Taiwan has yet to secure a trade deal with the US.

Taiwan can handle a slow rise in its currency if the central bank lays out a clear, long-term plan, The Economist said. It said workers and insurers will feel some pain but can adapt if the shift happens at a steady pace.