As countries around the world struggle to shelter their economies from the effects of the coronavirus pandemic, Taiwan is seeing the opposite.
Its economy is projected to grow 1% this year, according to a Bloomberg survey of economist estimates, second only to China’s 2% among major economies.
Taiwan has benefited from companies shifting some of their manufacturing back home from China amid growing tensions between Beijing and Washington, as well as increased demand for its products from the U.S.
While such good news would normally increase the allure of the local currency — and thereby reduce the attractiveness of Taiwan’s exports overseas — the central bank has taken aggressive action to limit gains.
The result is the currency has been the least volatile among 31 major exchange rates against the greenback in the past three months, after the pegged Hong Kong dollar.
Although Taiwan has regularly taken steps to curb strength in its currency before, which the central bank governor refers to as “smoothing,” such intervention can draw the attention of the U.S. Treasury.
At its most extreme, being labeled a manipulator can presage sanctions. The recent tensions between Washington and Beijing may also be benefiting Taiwan.
“With Taiwan the safe bet is always that intervention — or smoothing — will continue,” said Brad Setser, an economist with the Council on Foreign Relations.
“The only factor that in my view might induce Taiwan to change is external pressure, and the U.S. Treasury has been quiet on this topic since January.”