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EDITORIAL: Central
bank deserves praise
The central bank is taking a constructive approach to safeguarding the stability
of the NT dollar rather than succumbing to demands by local exporters to join
the regional currency depreciation race to boost orders.
The central bank demonstrated its hardline stance last week toward currency
hedge funds by announcing that it detected an overseas fund trying to profit
from speculative trades of the New Taiwan dollar. On Monday, the small-scale
foreign hedge fund was expelled from the local financial market after breaking
regulations by parking its capital in a local currency deposit account, rather
than buying local stocks as required. Two days ago, the Taiwan Stock Exchange
revoked the fund¡¦s permission to invest in Taiwan.
These actions are the latest and toughest by the central bank and were jointly
taken by the government¡¦s financial agencies to fend off potential attack by
global currency hedge funds. The most recent battle between central and global
large-scale hedge funds occurred during the Asian financial crisis in 1997 when
the government closed local non-delivery forward trading after the NT dollar
along with other Asian currencies became targets of the US hedge fund management
firm founded by George Soros. Taiwan was not as badly affected at the time as
peers such as Indonesia, South Korea and Thailand.
This punishment showed the central bank¡¦s determination to stop the local
currency from overshooting and is also considered to be a warning to hedge funds
to behave properly. It can also be seen as a precaution against a potential
relapse into financial meltdown after the US Fed starts to taper its stimulus
program, since Taiwan¡¦s financial markets are small and vulnerable to
volatility.
The central bank¡¦s message seems to have been well-received and its impact is
starting to be seen with the NT dollar depreciating 0.058 percent over the past
two days to NT$29.472 against the greenback. The NT dollar had appreciated 1.8
percent in the two months since the currency broke the NT$30 mark versus the US
dollar on Aug. 29.
The TAIEX has advanced 0.89 percent this week to 8,420.98 yesterday, with
foreign investors slowing the pace at which they have been unloading local
shares.
In response to exporters¡¦ calls to depreciate the NT dollar, central bank
Governor Perng Fai-nan (´^²a«n) told legislators on Monday that the movement of the
local currency was based on supply and demand. It would be unacceptable to see
the depreciation of the NT dollar against the US dollar, when demand for US
dollars weakened, Perng said. Foreign investors have wired US$3 billion into
Taiwan this month, while demand from exporters fell to about US$2.7 billion a
month on average, Perng said.
Shinkong Synthetic Fibers Corp chairman Wu Tong-sheng (§dªFª@) urged the central
bank to devalue the local currency to NT$31 versus the US dollar, while Eric
Chuo (¨ô¥Ã°]), CEO of the nation¡¦s top machinery tool maker, Hiwin Technologies
Corp, hoped the NT dollar would decline to NT$32, saying that the company was
losing orders due to the depreciation of the South Korean won and Japanese yen.
The NT dollar seems to be depreciating faster than expected. Earlier this month,
Taiwan Semiconductor Manufacturing Co, the world¡¦s biggest chipmaker, gave its
fourth-quarter business guidance based on an assumption that the NT dollar would
be at NT$29.5 against the greenback. The currency¡¦s closing price was NT$29.472
yesterday.
However, the central bank¡¦s job is more complicated than exporters imagine.
Depreciation of the NT dollar would drive up consumer prices, especially fuel
prices and the prices of everyday necessities, as Taiwan imports many
commodities from energy to wheat, sugar and milk powder. Besides, one of the
central bank¡¦s most important tasks is to keep financial markets stable. It is
good to see the central bank did not succumb to pressure from local exporters by
sacrificing the interests of the public.
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