Bonds may be off-limits to foreigners
Updated: 2010-01-08 07:40
(HK Edition)
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TAIPEI: Taiwan is considering banning foreign funds from buying bonds, a local newspaper reported yesterday, as regulators and the central bank ratchet up pressure on currency speculation they fear could damage the economy.
The move was aimed at stopping foreign investors from using the bond market to speculate on the Taiwan dollar, the Chinese-language Commercial Times reported yesterday, citing a central bank official.
"The central bank does not welcome that," Spencer Lin, head of the central bank's foreign exchange bureau, was quoted as saying, when asked whether foreign funds could invest in bonds.
Officials from both the Financial Supervisory Commission and the central bank said they had no knowledge of any such talks, and were checking the newspaper report.
Taiwan has imposed a series of capital controls and other measures since November in a bid to control flows of speculative "hot money" flooding into the island, as investors bet that its currency will appreciate.
At the same time, policymakers have tried to channel those investment flows into the stock market instead, helping the local market to a 78 percent gain last year.
On Tuesday, the central bank said it had passed the names of foreign investors with excessive deposits in the local currency to the financial regulator, and said those sending money to Taiwan had to buy stocks within a week.
Hot money flows also threaten to drive up local currencies, which could make exports less competitive and threaten still nascent economic recoveries. Taiwan, like many of its Asian neighbors, is heavily reliant on exports to drive economic growth.
Investors are bullish on Taiwan and its ties with the mainland, and Taiwan's currency has been seen as undervalued. Economic growth is expected to accelerate to 4.8 percent in 2010 as global demand rises.
The Taiwan dollar has risen about 11 percent against the US dollar since March, though heavy intervention by the central bank late in the year kept its gain for 2009 as a whole to just 2.6 percent.
Taiwan's foreign exchange reserves swelled by $30.6 billion in the second half of 2009 to a record $348.2 billion, indicating the central bank was ramping up its purchases of US dollars late in the year and selling its own currency to stem its rise. That compared to a $25.9 billion reserve rise in the first half.
The local dollar has risen a further 0.6 percent this week, despite signs that policymakers are growing increasingly alarmed.
China Daily/Reuters
(HK Edition 01/08/2010 page2)