Taipei: Taiwan’s Central Bank announced on Tuesday that it will initiate special inspections into the local banking sector to deter speculators from targeting the foreign exchange market and to mitigate volatility following a recent rapid appreciation of the Taiwan dollar against the U.S. dollar. Speaking with reporters, Tsai Chiung-min, head of the central bank’s Foreign Exchange Department, stated that the inspections will cover foreign custody banks and Taiwanese banks. The focus will be on whether foreign institutional investors are intentionally parking their funds in accounts longer than intended for speculation rather than stock market investment.
According to Focus Taiwan, Tsai emphasized that the central bank will scrutinize whether foreign institutional investors adhere to the bank’s instructions to transfer their funds into the stock market within seven days after moving the money to Taiwan. Additionally, the central bank will examine whether these investors retain their profits for an extended period after reducing stock holdings. Tsai noted the possibility that investors may keep their money in accounts longer to await opportunities for forex market speculation.
This announcement follows a significant appreciation of the Taiwan dollar on Friday and Monday, with the U.S. dollar plunging 6.21 percent against the local currency in just two sessions. Local media reported that analysts attributed the U.S. dollar’s losses to pressure from the Trump administration, as Taiwan and the U.S. engage in talks over a potential reduction of the 32 percent reciprocal tariff imposed by the White House on April 2, which was temporarily paused for 90 days.
On Monday evening, Yang Chin-long, governor of the central bank, noted that the bank intervened to stabilize market volatility, calling the fluctuations “abnormal.” He urged market commentators to refrain from excessive speculation about a continued sharp appreciation of the local currency, expressing hope that irregularities would cease.
Following Yang’s clarification of the central bank’s intent to curb speculation caused by hot money, the U.S. dollar rebounded in the two sessions, rising NT$0.135 to close at NT$30.280 on Tuesday. Dealers noted the central bank’s intervention smoothed out fluctuations, with its bottom line at the NT$30 mark. Tsai remarked that Tuesday’s Taiwan dollar movement indicated a return to market rationality.
Market intervention to curb the Taiwan dollar’s appreciation is expected to negate recent gains booked in the central bank’s portfolio. Foreign media reports suggested the central bank incurred a substantial loss of NT$2 trillion (US$66.05 billion) since May. However, Tsai assured that the bank’s bottom line remained sound, and forex market volatility would not impact its ability to pay profits to the national treasury.