Central Bank of the Republic of China (Taiwan)
PRESS RELEASE Release Date: September 4, 2011

A local media company reported last Saturday that one of the prime movers in Taiwan’s electronics industry had lamented that “the Korean government has done a better job at controlling exchange rates than its counterpart in Taiwan.” We would like to make the following clarifications.
1. Taiwan has adopted a managed floating exchange rate regime. Under this regime, the government cannot control exchange rates.
2. New Taiwan dollar has been more stable than Korean won. Over a three-year period starting December 31, 2007, the volatility of NT dollar exchange rates was 4.15%, much smaller than Korean won’s 14.51%. In other words, the volatility of Korean won has been 3.5 times as much as that of NT dollar. Stable NT dollar exchange rates help reduce currency risks and promote international trade. (Figure 1)
3. The Central Bank of the Republic of China (Taiwan) fully understands that Taiwan and South Korea are export competitors in terms of both product range and market destinations. We are also aware of the concerns of Taiwanese companies regarding NT dollar exchange rates vis-à-vis Korean won. When NT dollar appreciates, export proceeds in local currency terms decline, but import prices also fall, which can be instrumental in containing imported inflationary pressures caused by the rising costs of raw material imports. This flexibility has helped considerably to keep both inflationary pressure and inflation expectation in check. Over the past three years, Taiwan’s consumer price has been more stable than South Korean’s. (Figure 2)
4. Under a managed floating exchange rate regime, exchange rate movements reflect a country’s balance of payments. In 2008, the sharp depreciation of Korean won was mainly due to huge capital outflows that caused its balance of payments to record a deficit of US$56.43 billion. In the same year, Taiwan showed a balance of payments surplus of US$26.28 billion. The divergent paths of exchange rate movements mainly reflect the difference in the balance of payments experienced by Taiwan and South Korean.
5. The NT dollar exchange rate is mainly determined by the market. The CBC will step in to maintain order in the foreign exchange market when it is disrupted by seasonal or irregular factors (such as huge short-term capital flows) that threaten to undermine economic and financial stability.