The recent rise in the value of the New Taiwan Dollar, coupled with the strengthening of other Asian currencies, indicates a growing trend.
regional de-dollarisation
As investors reassess their positions in the U.S. dollar due to Washington’s “highly exploitative” stance toward other nations, analysts commented.
Countries such as Taiwan, which traditionally face significant risks from assets valued in U.S. dollars, experienced a downturn due to fluctuations in foreign exchange rates following the weakening of the American dollar over recent weeks. This was highlighted by Francesco Pesole, an FX strategist at Dutch-based ING, in his report released on Tuesday.
Now, local players are pursuing more extensive US dollar hedging strategies and beginning to spread their investments beyond the United States.
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The transition away from US assets is expected to lead to further depreciation of the US dollar, reinforcing a “bearish outlook” for the currency, according to Pesole.
On Tuesday, the appreciation of the new Taiwanese dollar came to a halt, with the rate closing at NT$30.280 per US$1 after reaching NT$30.145 on Monday. This followed an upward trend that had been ongoing since April 24. As of Wednesday afternoon, the exchange rate was trading at NT$30.244.
On Monday, Taiwan’s central bank issued a statement advising manufacturers to stay composed and refrain from “offloading US dollars because of unfounded expectations driven by overly dramatized or false assessments circulating in the market.”
Speculation has arisen regarding the currency’s strengthening relative to the US dollar, which was considered as
trade talks between
According to Professor Hu Jin-li from the Institute of Business and Management at National Yang Ming Chiao Tung University in Taipei, this pertains to relations between the US and Taiwan.
He mentioned that the immediate expenses from this appreciation consist of decreases in the U.S. dollar-denominated export values when measured in New Taiwan dollars, along with higher import expenditures computed similarly, which can lead to inflationary pressure in Taiwan. On the other hand, the prolonged advantages entail becoming part of a US-directed customs alliance, facilitating balanced trade with the global economic heavyweight, and possibly securing additional geopolitical backing.
Taiwan’s leader William Lai firmly rejected the theory the exchange rate was discussed during trade talks with US officials.
Stefan Angrick, an associate director and senior economist at Moody’s Analytics, noted that a more robust New Taiwan dollar might compress profit margins for the country’s technology-focused export industry.
Domestic semiconductor and electronic goods producers, who primarily generate income in American currency, will experience financial strain when these revenues convert to a lesser amount in domestic money.
However, the shift of Asian investors away from assets priced in US dollars is not yet complete, as Taiwan has only been the initial indicator, say experts.
The selling off of U.S. fixed-income Exchange-Traded Funds (ETFs) by Taiwanese investors, happening alongside a rise in the country’s currency, has been termed the “Taiwan Effect” by George Saravelos, who serves as the Global Head of Foreign Exchange Research at Deutsche Bank.
The upheaval serves merely as “a warning shot,” indicating that other regional economies could divest their US assets, he noted in a memo on Tuesday.
A self-fulfilling scenario might occur for other currencies as well, particularly when institutional investors have significant und hedged USD assets. The Japanese yen readily springs to mind.
The Trump administration’s
hostile attitude
The shift toward de-dollarization, as suggested by certain analysts, has been sparked by actions against foreign nations, even allies, such as imposing higher tariffs on nearly all trading partners.
“The current state of the global landscape reveals an American administration that is highly aggressive towards foreign entities,” said Louis-Vincent Gave, CEO of the Hong Kong-based financial services firm Gavekal, during an interview for Bloomberg’s Merryn Talks Money Podcast on Tuesday.
They believed that since the U.S. has a debt of $37 trillion, they would cover this gap through tariffs.
For numerous nations experiencing a trade surplus with the United States, investing these US dollars into American assets like Treasury securities has traditionally been the go-to approach. However, this mindset is beginning to evolve, as noted by Gavekal.
During a crisis, you can no longer be certain about relying on the US, thus we are moving into a significantly different era concerning the global dominance of the dollar standard.
Angrick pointed out that the increase in the value of the New Taiwan dollar underscores the necessity of closely monitoring the financial sectors across East Asia.
The area houses several of the globe’s biggest net international investors; therefore, variations in foreign exchange rates along with changes in hedging tactics can lead to significant movements in worldwide financial markets, ” he noted additionally.
The Taiwanese new dollar, Japanese yen, and South Korean won continue to be significantly undervalued. As investors reassess the risks associated with the U.S. dollar, these impacts might not be confined solely to East Asia.
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The article initially appeared on the South China Morning Post (www.scmp.com), which is the premier source for news coverage of China and Asia.
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