Taiwan’s forex reserves hit new high at end of 2023

Taipei, Jan. 6 (CNA) Taiwan’s foreign exchange reserves hit another new high at the end of 2023 as the local central bank continued market intervention to keep the Taiwan dollar from rising further against the U.S. dollar, according to the bank.

Data released by the central bank Friday showed the country’s forex reserves rose US$3.078 billion from a month earlier to US$570.595 billion as of the end of December, marking the second consecutive monthly increase.

In a statement, the central bank said it took action in December, to shore up the fragile greenback by buying the U.S. dollar and selling the Taiwan dollar in a bid “to smooth out volatile capital flows to maintain an orderly foreign exchange market.”

In addition to the bank’s market intervention, the higher forex reserves at the end of December also resulted from an increase in investment returns from portfolio management by the bank during the month, while a weaker U.S. dollar helped boost forex reserves, as non-greenback denominated assets were converted into the American currency.

Last month, the U.S. dollar fell 1.64 percent against the Taiwan dollar after a 3.71 percent plunge in November as the U.S. currency faced headwinds on expectations that the Federal Reserve will start to cut interest rates this year.

In the “dot plot,” the Fed’s closely watched grid of individual members’ expectations, the Fed implied after the latest policy-making meeting in mid-December that it would cut interest rates at least three times in 2024 by 75 basis points. The market has even embraced high hopes that the American central bank will lower rates by 150 basis points this year.

Speaking with reporters, Tsai Chiung-min (蔡炯民), head of the central bank’s Foreign Exchange Department, said the Taiwan dollar was not the only non-greenback currency to move higher, with many other currencies also appreciating against the U.S. dollar as the market rapidly changed its expectations about the Fed’s move to a rate cut cycle, which created volatility.

According to Tsai, the Japanese yen staged a strong rebound of 3.96 percent against the U.S dollar in December with the Swiss franc rising 3.45 percent and the Australian dollar climbing 3.01 percent against the greenback. The Chinese yuan, which had previously weakened against the U.S. dollar, also moved higher by 0.41 percent.

Tsai said foreign institutional investors moved large funds into Taiwan in December, adding to the downward pressure on the U.S. dollar.

According to the Financial Supervisory Commission (FSC), the top financial regulator in Taiwan, foreign institutional investors recorded a net fund inflow of US$8.677 billion into Taiwan, marking the second consecutive month of new net fund inflows.

In 2023 as a whole, foreign institutional investors registered a net fund inflow of US$29.48 billion, the highest in 13 years, as the Taiex soared 3,793.12 points, or 26.82 percent, FSC data showed.

After net buying by foreign institutional investors, the Taiex, the weighted index on the Taiwan Stock Exchange, rose 496.96 points, or 2.85 percent, in December.

Riding the rally on the local stock market in December, central bank data shows that the value of foreign investors’ asset holdings of Taiwan-listed stocks and bonds, and Taiwan dollar-denominated deposits rose to US$640.8 billion at the end of December, up from US$605.1 billion at the end of November. The December figure was the highest for 2023.

Those holdings represented 112 percent of Taiwan’s total foreign exchange reserves as of the end of December, up from 107 percent at the end of November, the data indicated.

Taiwan has the fourth largest forex reserves in the world after China’s US$3.17 trillion, Japan’s US$1.14 trillion and Switzerland’s US$733.6 billion at the end of November. India took fifth place with US$549.7 billion in forex reserves as of Dec. 22.

The local central bank has said it will maintain ample forex reserves to ensure domestic financial markets remain stable and guard against any sudden movement of funds out of the country by foreign institutional investors.