TAIPEI (Reuters) – Taiwan’s central bank said on Wednesday it sold $8.25 billion in the first half of this year to intervene in the foreign exchange market to try to stem the depreciation of the Taiwan dollar, adding that currency stability is a must.
Taiwan’s currency and stock market have plummeted in recent weeks due to sharp interest rate increases in the United States and a strong US dollar, as well as concerns about slowing global economic growth.
The Taiwanese dollar is down 13% against the dollar so far this year.
In a report to lawmakers before the bank’s governor asks questions in parliament on Thursday, the central bank said Taiwan is a small and open economy with a high degree of trade dependency and a “weak” foreign exchange market.
“It is necessary to maintain the relative stability of the Taiwan dollar exchange rate,” she said.
In comparison, the central bank bought a net $9.12 billion for the whole of last year to intervene in the foreign exchange market when it was trying to prevent the Taiwan dollar from rising too quickly.
The bank said that “large and frequent international capital movements” have long posed a major challenge to the stability of foreign exchange markets for small and open economies, affecting financial and price stability.
It added that short-term cross-border capital movement has become an important factor affecting the Taiwan dollar exchange rate, which often fluctuates due to uncertainty about the direction of monetary policy of major economies.
The central bank said that while the value of the Taiwan dollar fell against the dollar, it was relatively stable against other major currencies.
It added that Taiwan had achieved “good results” from its floating exchange rate regime, which helps businesses’ operations and contributes to domestic financial stability and economic growth.
Taiwan is a major semiconductor manufacturer and has a trade-dependent economy, so a depreciating currency makes its exports cheaper and more competitive.
However, Taiwan is also resource-poor and dependent on imports of raw materials and energy, which has made the devaluation of its currency more expensive.
