The central bank on Friday called on local financial institutions to strictly adhere to foreign exchange regulations to ensure that the inflow of foreign capital aligns with declared investment purposes and to maintain stability in the foreign exchange market.
Earlier this month, the local currency appreciated by more than 10 percent, raising concerns that exporters and life insurance companies could suffer significant losses due to shrinking profit margins.
According to the central bank’s monetary policy committee, it was discovered that some foreign funds initially intended for investment in Taiwan’s securities market were instead deposited in New Taiwan dollar (NTD) demand deposit accounts. This practice deviated from the declared use of the funds and contributed to instability in the currency market.
Central Bank Governor Yang Chin-long, speaking Thursday before the legislature’s Finance Committee in Taipei, stated that part of the NTD’s appreciation against the US dollar could be attributed to market speculation. He dismissed the notion that the currency movement was linked to ongoing trade talks between Taiwan and the United States.
Further investigations by the central bank revealed that some companies and individuals had converted foreign currency loans into NTD without clear or legitimate usage purposes. Such activities have the potential to intensify volatility in the domestic currency market. In response, the central bank pledged to take action against speculative behavior in the foreign exchange market.
Reiterating the importance of compliance, the central bank emphasized that all financial transactions must observe foreign exchange rules. It also urged financial institutions to assist in monitoring and reporting irregularities or violations.
Commercial banks, in particular, were reminded to follow the “real demand” principle when handling foreign currency loans and NTD forward foreign exchange contracts. This means verifying the necessity and legitimacy of every transaction.
For large-scale NTD conversions, banks are required to ensure that all supporting documentation aligns with the declared purpose of the transaction. This policy aims to improve transparency and safeguard the financial system against manipulation and misuse of funds.
Related Topics:
US Dollar Rebounds Sharply Ahead of Key US Inflation Data
Could FX Hedging Strategies Support a Weakened Australian Dollar?
