Pay Attention to and Rectify the Problem of Padded Foreign Exchange Reserves Figures

 Pay Attention to and Rectify the Problem of Padded Foreign Exchange Reserves Figures

China Times Editorial (Taipei, Taiwan)

August 5, 2017

 Translation of an Excerpt

The International Monetary Fund (IMF) points out, in its latest global external imbalances report, that Taiwan's surplus in balance of payments ranks #5 in the world; the degree of excessive surplus even ranks #2 globally. The IMF believes that countries possessing excessive surplus with significant fiscal revenues should reduce their reliance on quantitative easing policies, take a further step in expanding fiscal expenditures, and focus on removing various policy distortions, so as to avoid suppressing domestic demand or restrict trade competition.

In our foreign trade, we have enjoyed long-term surpluses, which have shown a trend of growth, making our balance of payment surpluses climb ever higher. In theory, the New Taiwan (NT) dollar should depreciate, but the NT dollar rate of exchange against the US dollar has gone from 30 to 1 at the end of 2013 to 32.2 to 1 at the end of 2016. In the eyes of the United States, it must be government intervention, deliberately allowing the NT dollar to depreciate and rather than appreciate, and creating greater surpluses in trade and balance of payments.

Since President Trump took office, he has emphasized "fair trade" and "America first"; of course the US could not tolerate the status quo in Taiwan-US trade and foreign exchange rates. In a report on foreign exchange policies of the US’s principal trading partners in April this year, Taiwan and five other countries were listed once again on the "watch list" of countries intervening in foreign exchange rates; it was a new warning for our country. In addition to being listed on the watch list, Taiwan alone was charged with being a country "continuing the unilateral manipulation of the foreign exchange market." The United States apparently felt that it could no longer tolerate Taiwan’s foreign exchange policies and actions.

Experts have recommended that the Central Bank of the ROC can refer to the US approach by enhancing communication with the market through expressing its own views, leading the market in self-adjustment, and not jumping into the market for operations, thus leaving evidence for charges of intervention. Perhaps the smooth execution of this measure may be the final act before retirement of "13A Govenor" Perng Fai-nan.

The question of excessive surpluses in the balance of payments no longer has any room for maneuvering; it must be effectively resolved as soon as possible. 

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