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Press Releases

Clarification on a news article related to the NT dollar exchange rate

Central Bank of the Republic of China (Taiwan)

PRESS RELEASE                   Release Date: December 11, 2017

Clarification on a news article related to the NT dollar exchange rate

To avoid any misunderstanding in regard to a news article published on December 8, 2017, which falsely claimed that weaker gains in the NT dollar relative to the Korean won suggests central bank intervention, the Bank issues the following explanations to straighten the facts.

I. The exchange rates of the NT dollar and the Korean won, determined by their respective markets, often exhibit different trends and do not necessarily track each other.

1. As the U.S. subprime debacle triggered the global financial crisis in 2008 and induced massive capital outflows from South Korea, the won tumbled to a low of KRW1570.3 against the US dollar, a fall of 40.4% compared to the end of 2007. During the same period, the NT dollar also weakened to a low of NT$35.174 against the US dollar with a 7.8% decline over end-2007. (Table 1)

2. In 2016, the won depreciated by 2.9% against the US dollar, whereas the NT dollar strengthened by 2.4% against the US dollar. (Table 2)

3. During the first nine months of 2017, the won and the NT dollar both appreciated against the US dollar with alternating leads. Between end-September and the start of the year, the won rose 5.4%, smaller than the 6.5% appreciation in the USD-NTD exchange rate. (Table 3)

4. The USD-KRW exchange rate has gained more since October this year than its NTD peer, which could be explained by the won's previous weakness relative to the NT dollar, Korea's greater net foreign capital inflows than Taiwan's, and a recent pickup in its pace of growth.

(1) Between end-September and December 8, 2017, the won rose 4.8% against the US dollar while the NT dollar appreciated by 1%. In the meantime, foreign investment in the Korean equity markets rose by US$2.36 billion but that in Taiwan's stock market declined by US$0.53 billion. (Table 3)

(2) South Korea's economy expanded by 3.8% year on year in the third quarter this year. In addition, the Bank of Korea, who just hiked the policy rate by 0.25 percentage points to 1.5% on November 30, forecasts the economy to pick up at a pace of 3.0% in 2017, partly bolstered by a rebound in its economic and trade activity with China.

II. The USD-NTD bid-ask differentials were rather small from September onwards. Late trade (15 or 30 minutes before the close) prices mostly moved in a narrower range than other time slots of the day and changes are not one-sided.

1. Data for the period of Sept.1 to Dec. 8 this year showed that the bid-ask differentials of the USD-NTD currency pair were generally marginal, sometimes just one or two pips. Price changes were also small across all trading time slots. Moreover, judging from the average rate of change, the USD-NTD exchange rate did not move more significantly during end-of-day trading than in other same-day time slots (Table 4).

2. On November 22, 2017, shown with the largest late price drop in a graph of the news article to support its claim, the NT dollar actually depreciated by a mere 0.027%, or NT$0.008, from NT$30.012 to 30.020 in the 15:45-16:00 time slot. This was only in mid-range among all the 15-min intervals of the day in terms of both price change and percent change (Figure 1), which should otherwise have been more pronounced if there had indeed been central bank interventions.

3. Late trade currency declines (price drops compared to the preceding trade) were recorded in 35 of the 69 trading days during the Sept. 1 - Dec. 8 period. This shows late trade price changes were not skewed toward weakening.

III. Since mid-2017, against a backdrop of continued trade surplus and increasing forex supply, the NTD exchange rate has broadly moved around the NT$30 level against the US dollar. The main reason, aside from foreign capital outflows, was that demand more than offset supply in the local forex market as recent weakness in the US dollar and the Japanese yen stoked public interest in purchasing foreign currency.

1. Foreign investors have collectively been a net seller in the TAIEX stock market and registered net capital outflows (Figure 2) as Taiwan's equity price and exchange rate both reached their highest levels in recent time.

2. Recently, significant NT dollar appreciation has created market expectations that the rise might not be sustainable and the time is right to buy foreign currencies for investment or for future overseas travel expenses. As a result, foreign currency purchases made by retail customers often amounted to several hundred millions of US dollars in one single day. At the end of October 2017, foreign currency deposits held by domestic banks increased by NT$477.1 billion (about US$15.6 billion[1]) from the end of year 2016. (Figure 3)

IV. It should be noted that, while some people estimate the Bank's intervention using changes in the Bank's foreign assets, the increase thereof mainly comes from interest earned on reserves, which is recorded in different months of the year (for example, the November 2017 interest income was relatively higher). That is why many such estimates fail to correctly reflect the true dynamics in the change in our foreign reserves. 

V. Regarding local insurers' outbound foreign investments cited in that news article from a blog post, it should be made clear that these wholly private insurers' own investment strategy, not the authorities' instructions, contributes to the claimed “jump” in their foreign investments. Flush with funds from insurance policies maturing in the distant future, insurers tend to seek longer-term, higher yielding products overseas in the absence of such products in the domestic market, in order to guard against maturity mismatch.

VI. We are of the view that the press should strive to be objective and fair and refrain from producing presumptive conjectures based on atypical price trends or slanted on idiosyncratic biases.

VII. The NT dollar exchange rate is in principle determined by market forces. Only when seasonal or irregular factors (such as massive inflows or outflows of short-term capital) lead to excess volatility and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, will the CBC, in line with its statutory mandates, step in to maintain an orderly market so as to sustain economic and financial stability.

Table 1  The biggest declines in the NT dollar and the Korean won against US dollar during the global financial crisis



Table 2  Foreign investor net purchase in TWSE and KOSPI markets and NTD and KRW volatility (2015 - 2017)



Table 3  Foreign investor net purchase in TWSE and KOSPI markets and NTD and KRW volatility (2017)



Table 4  Average volatility of USD-NTD in different intraday trading intervals



Figure 1 The USD-NTD price change at different intraday trading time slots on Nov. 22, 2017



Figure 2   Foreign portfolio investors net purchase/sale and net foreign capital flows (2017/1 - 2017/12/8)



Figure 3    Foreign currency deposit held by domestic banks (2016/1 - 2017/10)


[1] Based on the average closing price of the USD-NTD exchange rate for the first ten months of 2017.