TAIPEI, Jan 24 (Reuters) – The impact of this month’s U.S.-Taiwan trade and tariff deal on the Taiwan dollar’s exchange rate is within a “controllable range”, the island’s central bank said on Saturday.
Under the deal, which cuts the tariff on Taiwan’s goods to 15% from 20%, Taiwan companies will invest $250 billion in the United States while Taiwan will also guarantee an additional $250 billion in credit to facilitate further investment.
In May, the Taiwan dollar surged against the U.S. dollar on speculation Washington had asked for it to appreciate, which Taiwan’s government and central bank, which has a mandate to keep a stable exchange rate, strongly denied.
In a report to lawmakers, Taiwan’s central bank said the investment amount into the United States might increase Taiwanese companies’ demand for U.S. dollars.
But the agreement’s impact on the Taiwan dollar exchange rate is “still considered to be within a controllable range”, it added.
Taiwan’s large exporters have long accumulated foreign-currency assets on a considerable scale and so can use their own foreign-currency holdings as the source of U.S. dollar funds for investing in the United States, the central bank said.
They may thus not need to first convert Taiwan dollars into U.S. dollars and then remit them abroad, which can reduce the impact on the domestic foreign-exchange market, it added.
Since their future income will be in U.S. dollars, they can also issue U.S. dollar–denominated bonds directly or obtain U.S. dollar financing through banks, then use future U.S. dollar revenues to repay the bonds or service U.S. dollar loans, achieving a “natural hedging effect”, it said.
The trade agreement is expected to be implemented in phases over several years, which will help spread out firms’ demand for U.S. dollars and further ease its impact on the domestic foreign-exchange market, the central bank added.
It reiterated that the central bank did not take part in the trade and tariff talks with the United States.
(Reporting by Liang-sa Loh and Ben Blanchard; Editing by William Mallard)
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