Regulator Further Thwarts Influx of Hot Money

Oct 15, 2010 Ι Industry In-Focus Ι Furniture Ι By Philip Liu, CENS
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Taipei, Oct. 15, 2010 (CENS)--With the exchange rate of the NT dollar against the U.S. dollar rising to a 27-month high yesterday (Oct. 14), the Financial Supervisory
Commission (FSC) announced that foreign investors can only borrow securities with U.S.-dollar deposits.

The decision was made upon the suggestion of the Central Bank of China (CBC), as growing numbers of foreign currency speculators have parked their inwardly remitted funds in the form of deposits for securities borrowing, as well as demand deposits and bonds, after conversion into the N.T. dollar.

The FSC and Taiwan Stock Exchange (TSE) originally regulated that foreign investors can borrow securities with deposits in the form of NT-dollar cash or government bonds, but added U.S.-dollar cash as an alternative in August, in response to the suggestion of the CBC.

An FSC official noted that for foreign investors other than currency speculators, the use of U.S. dollar for securities-borrowing deposits can protect them from the risk arising from exchange-rate fluctuation.

In answering interpellation of legislators yesterday, Chen Yuh-chang, FSC chairperson, however, maintained a conservative stance to follow the step of Thailand in levying hot-money tax, saying that it would affect foreign investments in the stock market.

The new measure for securities-borrowing deposits underscores the growing concern of the regulator over the impact of the hot money flowing into Asia on the stability of the local currency.

The NT dollar soared NT$0.42 against the U.S. dollar in mid-session yesterday, before closing up NT$0.19 to NT$30.77, the highest in 27 months, on trading volume of US$1.296 billion.

A banking managed reported that there still exists heavy pressure for the appreciation of the local currency, which is still lower in scale than the appreciation of renminbi and Singaporean dollar against the U.S. dollar.