Central bank tells financial firms to follow forex rules

• By Crystal Hsu / Staff reporter

The central bank yesterday called on local financial institutions to strictly adhere to foreign exchange rules and ensure that foreign capital inflows align with their declared purposes to help maintain stability in the foreign exchange market.

The call came after the local currency appreciated more than 10 percent earlier this month, raising concern that local exporters and life insurers would face substantial profit erosion.

The top monetary policymaker said it found that some foreign funds, intended for investment in Taiwan’s securities market, are parked in New Taiwan dollar-based demand accounts instead.

Photo: George Tsorng, Taipei Times

Central bank Governor Yang Chin-long (楊金龍) earlier partly blamed market speculation for facilitating the rise in the NT dollar against the greenback and said that the trend has nothing to do with Taiwan-US trade talks.

Further investigation revealed that some companies and individuals had converted foreign loans into the local currency without clear or legitimate use, moves that could add volatility to the local currency market, the central bank said, after pledging to take action against currency speculators.

The central bank reiterated the importance of compliance with foreign exchange rules for all transactions and that financial institutions should help monitor irregular activity.

Commercial banks should check the “real need” principle when processing foreign currency loans and NT dollar forward foreign exchange contracts, it said, adding that this requires verifying the necessity and legitimacy of each transaction.

For large-scale NT dollar conversions, banks must ensure that supporting documents match the declared purpose of the transaction, it said.