The central bank yesterday rebutted media speculation that the value of the New Taiwan (NT) dollar is underestimated and should appreciate because the local currency’s real-effective-exchange-rate (REER) index is lower than 100.
Using the year of 2005 as a base year with a score of 100, the NT dollar’s REER index dropped to below 90, the Chinese-language weekly Business Today (今周刊) said in its latest issue dated Jan. 25.
However, the central bank said that the REER index, which is used to determine a country’s currency value relative to the other major currencies, is subject to change because of different base periods.
Yen Tzung-ta (嚴宗大), head of the central bank’s economic research department, told a media briefing yesterday that the REER cannot reflect a currency’s equilibrium exchange rate, which changes with both the international and domestic economic and financial situations.
“The international community does not use the level of 100 as a standard to determine whether a country’s currency is at the proper level,” Yen said, adding that the base period changes every five years in Taiwan.
“The NT dollar is ‘dynamically stable’ within the range of 5 percent above or below its 36-month moving average,” Yen said.
Citing data from the UN Development Program, the central bank said that international capital flow has become an essential factor affecting currency rate fluctuations in developing countries in Asia rather than trade patterns and economic fundamentals.
“A depreciation in the NT dollar would help exporters but hurt importers, while an appreciation would help importers and hurt exporters,” the central bank said in a statement.
As a result, Yen said that the NT dollar’s exchange rate is “anti-inflationary” and “counter-cyclical” with an eye to helping stabilize the maro-economy.
“The central bank’s exchange rate policies cannot satisfy all needs from different sectors due to marco-economic concerns,” he said.
To support his view that the NT dollar’s exchange rate is “flexible and not rigid,” Yen said the unit rose to NT$32.030 against the greenback at the end of last year, “which represented an increase of 9.8 percent from that year’s low of NT$35.174 recorded on March 2.”
Moreover, a high correlation among Asian currencies, besides the Japanese yen and Chinese yuan, is also a factor that impacts the exchange rate of the NT dollar, the central bank said in the statement, citing strong correlations between the NT dollar and the South Korean won and the Singaporean dollar each. South Korea and Singapore compete head-to-head with Taiwan in exports.
In Taipei trading yesterday, the NT dollar gained NT$0.071, or 0.22 percent, to close at NT$31.919 against the greenback, after it fluctuated between NT$31.874 and NT$32.040 during the session.
The local currency is “relatively stable,” the central bank said in the statement.
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