The damage caused by the global economic slowdown is by no means limited to the economies of China, the U.S. and Europe. Earnings in the small Asian nation of Taiwan have also come under threat and the country’s largest companies have been demanding a stabilised or weakened currency.
Now the Taiwan dollar is becoming one of the least volatile currencies in Asia thanks to central bank intervention. It is hoped that this action may give the nation the boost it needs to keep up with its exporting rivals. Back in March Governor Perng Fai-nan said that Taiwan’s Central Bank would take steps to ‘maintain order’ in the exchange rate as currency stability helps manufacturers set customer prices which reflect production costs and thereby capitalize on profits and margins. In all but one of the past eight months overseas sales have fallen, consequently the Central Bank of the Republic of China (Taiwan) has attempted to halt gains in the local currency by purchasing U.S. dollars on numerous occasions over the past four months. Chairman of the Taipei-bases General Chamber of Commerce of the Republic of China Chang Pen-Tsao stated: ‘When the global economy is doing so badly, the central bank needs to make sure the Taiwan dollar is stable to keep us competitive. The governments of our biggest competitors are doing the same.’
According to figures collated by Bloomberg news agency the Taiwan dollar three-month historical volatility dropped 0.04 this quarter to 2.82 per cent. Only the Hong Kong dollar and the Chinese yuan varied less. In the last quarter Japan’s yen, Malaysia’s ringgit and India’s rupee were the most unstable Asian currencies.
However, there could be rough waters ahead for the Taiwanese currency. Over the quarter the Taiwan dollar gained 1.8 per cent compared with the U.S. dollar. A senior economist with Yuanta Investment Consulting commented: ‘If the Taiwan dollar still strengthens a lot from the current level, that’s when exporters will really feel the pain.’ Aidan Wang then added, ‘The rally brought by QE3 is Asia-wide, and maybe that makes the central bank a bit less nervous’
Philip Wee, a senior economist with DBS Group Holdings Ltd also asserted: ‘It’s about keeping the currency more stable and aligned with other currencies. I’m pretty sure the central bank has taken in feedback from exporters as well.’
Official data has demonstrated that demand from overseas accounts for two-thirds of Taiwan’s growth and that the nation’s biggest regional rival when it comes to exports is South Korea, particularly as corporations like Samsung Electronics Co. are striving for smart-phone market share against Taoyuan (Taiwan-based HTC Corp.) There is also fierce competition between the islands manufacturers for global market share in computer based and machinery based products. Taiwan’s exports fell by 5.6 per cent in the first half of 2012 compared to a year earlier, whilst South Korean exports fell just 2.1 per cent. Despite the statistics bureau slashing their forecast for Taiwan from 0.07 per cent growth to 1.72 per cent contraction there is still a risk that the island will miss its export goal for the year.
Elsewhere in Asia, the animosity between Japan and China is escalating by the hour and the likelihood that the continent’s two biggest economies will be damaged by the altercation is increasing. In the current climate any Asian stability that can be achieved will be hard won.
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