Taiwan’s central bank, fearful of being labeled a currency manipulator by U.S. President Donald Trump, has pulled back on intervention to weaken the Taiwan dollar, making it Asia’s second best-performing currency in 2017.
The currency has risen 5 percent so far this year, giving the island’s stock market a boost, but knocking its fourth-quarter balance of payments to a five-year low and hammering its insurers, which are heavily invested overseas.
A central bank official told Reuters the currency movement was directly related to the bank not intervening so much in the foreign exchange markets.
“The central bank wants to signal to the United States that it does not manipulate Taiwan’s currency,” the official said.
The bank’s governor, Perng Fai-nan, declined to comment when asked on Thursday if the currency’s strength was linked to the bank’s nervousness that Trump might label it a manipulator.
Trump has criticized especially China, Japan and Europe for policies he claims artificially weaken their currencies and make their exports more competitive.
His administration has said it will analyze the currency practices of major trading partners, and the U.S. Treasury is required to publish a report on these practices in mid-April.
After any declaration that a country manipulates its currency, the Treasury will try to negotiate a resolution, but the process could result in punitive tariffs on that country’s goods.
Taiwan already meets two of the three U.S. criteria to be labeled a manipulator, including intervention to weaken the currency. An upcoming new iPhone model, for which Taiwan makes many of the components, is expected to boost its trade surplus with the United States to levels that could provoke a reaction.
“The effects of Trump’s pronouncements that some central banks are manipulating their currencies have been quite toxic,” said a vice-president at Mega Financial Holding’s banking arm, which is Taiwan’s biggest state-run bank operating in overseas markets.