Higher competitiveness offsets stronger Taiwan dollar's strength: Central bank

Taipei, June 21 (CNA) Improving the competitive edge of Taiwanese exporters in the global market has offset the adverse impact of a stronger Taiwan dollar against the U.S. dollar, according to the Central Bank of the Republic of China (Taiwan).

In a report released after a quarterly policymaking meeting on Thursday, the central bank said that in recent years, many Taiwanese firms, particularly in the semiconductor industry, have invested significantly in advanced processes to meet solid global demand for emerging technologies, making themselves more competitive than ever.

The central bank said that despite a sharp appreciation of the Taiwan dollar in May, strong demand for artificial intelligence applications and rush orders placed by foreign buyers ahead of schedule to avoid tariffs by the Trump administration continued to push up Taiwan's exports by 32.3 percent in Taiwan dollar terms.

So far this year, the Taiwan dollar rose against the U.S. dollar by more than 11 percent. In May alone, the local currency soared NT$2.088, or nearly 7 percent, against the U.S. dollar amid market speculation that the U.S. had pressured Taiwan to allow currency appreciation as part of ongoing trade and tariff negotiations between the two sides.

The central bank admitted it jumped into the market to shore up the U.S. dollar and prevent the Taiwan dollar from rising further, but denied Taiwan came under pressure from the U.S. for a stronger local currency at a time when Taipei has been in talks with Washington on tariffs.

In June, the appreciation of the Taiwan dollar has continued as conflict in the Middle East escalates. Earlier this week, the local currency hit NT$29.460 at one point, the highest in more than three years.

The central bank said a growing Taiwan dollar cut both ways: the appreciation is expected to result in foreign exchange losses for exporters, but it is expected to lower costs for companies which need to buy equipment or raw materials from overseas to boost their profit margin.

Citing data from 2015-2024, the central bank said companies listed on the local main board and the over-the-counter market raked in accumulated forex gains of NT$358.2 billion (US$11.01) after an offset of forex losses by forex gains.

Between 2015 and 2021, these listed companies generated NT$14.8 trillion in combined operating profits, which went significantly beyond their forex losses of NT$116.7 billion, according to the central bank.

After a survey targeting local enterprises on how to reduce forex losses, the central bank said many companies have engaged in hedging practices, including so-called natural hedging.

Among common methods in natural hedging is to match revenues and expenses or invoices in the local currency, the analyst said, adding that the impact from a stronger Taiwan dollar will vary from industry to industry.

In addition, the central bank said many Taiwanese exporters have adjusted their production and sales models: in the short run, they have raised product prices and cut orders on products with a lower gross margin; in the long term, they are keen to increase value-added products and diversify their product portfolios.

The central bank said it will continue its efforts to maintain order on the forex market and ensure the Taiwan dollar will move in a dynamic equilibrium.

On Thursday, Central Bank Governor Yang Chin-long (楊金龍) told reporters that the strength of the Taiwan dollar so far this year remained acceptable to him, adding that with Taiwan's economic growth expected to slow down and U.S. tariff policies likely to become clearer in the second half of the year, the appreciation of the local currency could moderate accordingly.