Taiwan’s central bank issued a reminder on Friday, urging financial institutions to comply with foreign exchange (FX) settlement regulations, following significant appreciation of the New Taiwan Dollar (TWD) in recent days. The TWD’s gains were fueled by speculation that the United States had requested Taiwan to permit the Chinese yuan’s strengthening as part of ongoing trade talks.
The TWD rose sharply against the U.S. dollar last Friday and again on Monday, prompting concerns of potential market manipulation. However, both the central bank and President Lai Ching-te dismissed any connection between the currency fluctuations and U.S.-Taiwan trade negotiations. Since then, the TWD has returned to more stable levels.
In a related development, the People’s Bank of China issued a statement urging banks to ensure they fulfill their responsibilities during foreign exchange settlements. Taiwan’s Financial Supervisory Commission (FSC) also emphasized that banks must verify the legitimacy of documents and the nature of transactions, especially when processing large TWD settlements.
Additionally, the central bank reminded financial institutions that when handling foreign exchange forward contracts, they should assess the “reasonableness, relevance, and practicality” of both the transaction documents and the flow of funds. The central bank revealed that some companies and individuals have been using offshore loans as a cover for TWD settlements without actually using the currency.
The central bank did not identify the banks under scrutiny.
As the institution tasked with maintaining monetary stability, Taiwan’s central bank typically intervenes to prevent excessive fluctuations in the value of the TWD.
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