The reason? Bob Bernanke's friendship with Wall Street and indifference to Main Street:
The Taiwan dollar advanced 1.6 percent to NT$30.144 versus the greenback as of 10 a.m. local time, according to Taipei Forex Inc. That’s the biggest one-day gain since January 2000. The currency reached NT$30.04 on Nov. 5, the strongest since March 2008.
This led to foreigners buying $300 million more of Taiwan shares than they sold, driving the TAIEX up. In addition to the dollars flooding the world, the local Central Bank's policy of raising interest rates is also attracting foreign money. The Taiwan Central Bank is not in a good position. If it drops interest rates it makes credit cheaper, fueling the local property bubble and driving inflation up, but if it raises interest rates hot money floods in from abroad, pushing up the NT and hurting exporters. The Economic Daily News pooh-poohed the government's reaction, calling for a more serious response.
Taiwan’s dollar rose the most in a decade on speculation overseas investors will keep pumping funds into local stocks as dollar printing in the U.S. makes more cash available that can be invested in higher-yielding assets.
The government said after the market closed yesterday that it will limit foreign ownership in the island’s debt as it strives to curb the inflows from abroad, sending bonds lower today. The currency ended little changed yesterday after rising as much as 1.7 percent as traders said the central bank intervened.
In response, the central bank has repeatedly bought U.S. dollars near the end of the foreign exchange market's trading day to lower the price of the Taiwan dollar, resulting in severe fluctuations of its exchange rate.Robin Kwong wrote in his
The closing price carries no substantive significance because it does not reflect actual transaction prices recorded during the five-hour trading session on the Taipei foreign exchange market. It is widely known that the exchange rate will rise again to reflect its market price the next morning. The central bank's adjustment is, therefore, merely a waste of effort.
The data also suggests that the island’s exporters have been sheltered by the central bank. Even at T$30 to the dollar, the TWD-US exchange rate would only have risen 6 per cent since August, when it stood at T$31.91. This volatility was “not very big” and has so far had no significant impact on exports, according to Lin Lee-jen, director of the finance ministry’s statistics department.The Economic Daily News and Financial Times essentially present the same analysis -- at the end of the trading day the Central Bank acts to protect exporters by forcing the NT dollar back down -- on paper. But the hot money will continue to flow in, forcing the NT back up. The papers also reported that Taiwan had set limits on how of its debt can be owed by foreigners, though I can't see how they can be enforced. Can someone explain that to me?
Taiwan’s central bank says it allows the Taiwan dollar exchange rate to float freely and would only take action in the event of “excessive volatility due to seasonal or irregular factors”. However, traders chatter that the central bank is an active participant in the forex market: indeed, little else could explain the Taiwan dollar’s frequent falls at the close of trading days.
That is evidence that the most important line of defence is not the Ma Defence Line but the Perng Defence Line - named after central bank governor Perng Fai-nan. The Taiwan dollar has never risen above T$30 since Perng took office in 1998, and exporters have reason to be grateful.
Central Bank director Peng is fairly independent of the KMT, I've heard from those in know. He was appointed to the post by Lee Teng-hui in 1998.
In related news, Lien Chan, the KMT heavyweight and two-time presidential loser, said that Taiwan had been invited to join the Trans-Pacific Partnership (TPP), a US-backed regional trade initiative. But government spokesmen said that Taiwan had merely expressed interest in doing so.
ADDED: Good comments below.
- The imposing Mormon Temple in Taipei. It reminds me of this.
- The EU won't let media critical of the CCP (note, not China) to attend media conference involving Chinese officials. Time for EU to make a stand, Michael Danielson argues.
- Cycling Satin Cesena on the bike factories that, unknown, dot central Taiwan.
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