Taiwan Mulls Currency Control to Manage Inflows
Taiwan's central bank is considering a new policy that could reshape how foreign funds invest in its stock market. The proposed rule aims to slow the appreciation of the Taiwan dollar, which has risen significantly against the US dollar.
Proposed One-Day Delay
The central bank is considering implementing a one-day delay for foreign funds converting currency to invest in Taiwanese stocks. This would require foreign institutions to provide proof of stock orders before converting into the Taiwan dollar.
Impact on Foreign Investors
This change represents a significant shift from the current system, where investors can freely swap currencies on the same day they place trades. The rule, if adopted, is intended to target foreign institutions with weaker inflow controls, not all investors.
Reasons for the Policy Change
The Taiwan dollar has appreciated nearly 14% against the US dollar this year. This has put pressure on the island's exporters and financial firms. In response, policymakers have already implemented various measures, and this new proposal is the most direct attempt to limit speculative inflows.
Market Reaction
Markets have already reacted to the news, with the implied gain on the Taiwan dollar dropping, and the currency edging down. A meeting with custodian banks is scheduled for next week to discuss the implications.
Potential Consequences
If this rule goes into effect, it could reshape how funds manage positions in Taiwanese equities, affecting companies like Taiwan Semiconductor Manufacturing and Tesla. Delayed settlement could increase risk and complexity, potentially reducing fast-money flows into the market.