Export Surplus Fails to Offset Foreign Capital Outflow Pressure
Central Bank Governor 楊金龍 on 10月28日 attended the Legislative Yuan Finance Committee for a business report and interpellation. DPP Legislator 吳秉叡 questioned that according to traditional international trade theory, with Taiwan's record surplus continuing to expand, why the New Taiwan Dollar weakened instead, and whether heavy foreign selling was related to the widening US-Taiwan interest rate spread. KMT Legislator 賴士葆 was concerned that foreign investors have sold Taiwan stocks totaling 達新台幣2兆元 this year, with outflows reaching 716億美元, whether there is still a so-called defense line, and whether speculative vultures are manipulating the exchange rate.
楊金龍 explained that this year Taiwan stocks soared all the way from 2萬7,000點 to 4萬9,000點, surging over 2萬多點, with gains concentrated in electronics and chip stocks, which happen to be the targets with the highest foreign shareholding. After handsome profits, foreign investors took profits at highs, selling over 新台幣2兆元 in Taiwan stocks and remitting out 716億美元, with the scale of selling and outflows exceeding the full-year 2,000億美元 trade surplus, becoming the most critical driver pushing down the New Taiwan Dollar exchange rate.
Denies 32.5 Defense Line, Adheres to Willow Tree Theory
楊金龍 stressed that the US-Taiwan interest rate spread and a stronger US dollar were not the main cause of the New Taiwan Dollar depreciation, but rather rich stock market gains and large dividend payouts. On concerns over an exchange rate defense line, he clarified that neither he nor former Governor 彭淮南 ever spoke of an exchange rate defense line, and the central bank has absolutely no so-called 32.5 exchange rate defense line, with the exchange rate fully determined by market supply and demand.
楊金龍 said the central bank adopts the willow tree theory, letting the exchange rate sway with market dynamics, and if volatility becomes excessive, it will definitely step in to adjust to maintain order in the foreign exchange market. On concerns about speculative vultures manipulating the exchange rate, he said no such problem has been found at present, last time some were found, this time none.
Contrast With Korean Won Trend, Good Communication With the US
DPP Legislator 郭國文 contrasted with the Korean won, questioning that as the US dollar strengthened, Korea saw foreign selling of 1,270億美元, 2 times Taiwan's amount, yet the won appreciated, while the New Taiwan Dollar has depreciated 3.23% since the start of the year, asking why. 楊金龍 analyzed that sharp rises and falls are one of the won's characteristics, and Korea is dominated by large enterprises, while by contrast Taiwan is dominated by small and medium enterprises, so the exchange rate must remain relatively stable, which is most beneficial to import-export industries.
楊金龍 noted foreign investors favor Taiwan stocks for two main reasons, first good economic fundamentals, with continued GDP growth since 2016年, and second financial and exchange rate stability, so they are deeply invested in Taiwan stocks and will not easily exit in the short term, and the central bank will observe cautiously. In addition, the US Treasury reviews major trading partners every half year to assess whether to include them on the currency manipulator watch list, and he reiterated the central bank communicates well with the US Treasury, and the US side also understands Taiwan's touching on two indicators is mainly a Taiwan-US trade structure issue, and the indicators for being listed on the watch list are unrelated to the exchange rate.