The central bank yesterday questioned the validity of a Bloomberg Benchmark report pulished yesterday stating that US president-elect Donald Trump might have the wrong currency in his crosshairs regarding the US’ trade deficit.
The report said that the New Taiwan dollar is undervalued by more than 25 percent against the currencies of its trading partners, giving its exporters a competitive advantage, while the yuan is more or less fairly valued, according to calculations by William Cline, a senior fellow at the Peterson Institute for International Economics in Washington, who took into account current and prospective trade flows.
“President-elect Donald Trump has accused China of ripping off the US on trade and threatened to brand the country a currency manipulator soon after taking office. Yet economists say his new best bud and China’s nemesis, Taiwan, is much better suited to bearing that damning label,” the report said.
The central bank said that the report is based on inaccurate information drawn from a blog post by Brad Setser, a senior fellow at the Council on Foreign Relations.
The blog post was published on the council’s Web site on Dec. 5.
Setser said that Taiwan’s current account surplus is far larger than China’s relative to their respective GDPs, while Taiwan’s central bank has been buying an average of between US$10 billion and US$15 billion of foreign currency annually in recent years, and conducted about US$3 billion of purchases per quarter this year.
In addition, deregulation in Taiwan has enabled massive private outflows, which help limit the need for central bank intervention to keep the currency down, at the cost of higher foreign currency risk taken on by financial institutions, Setser said.
In contrast, China has been selling foreign-exchange reserves to support its currency, weakening the case that China is managing its currency in ways that are adverse to US trade interests, Setser said.
The central bank said that a number of readers voiced their objections to Setser’s analysis.
One person said that Taiwan’s large foreign currency reserves and current account surplus are vital strategic assets in light of the nation’s political isolation.
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