Taiwan strengthens foreign exchange controls

台灣加強外匯管制

TAIPEI (Taiwan News) – Rapid appreciation of the Taiwan dollar in recent days led Tsai Chiung-min (蔡炯民), director of the Central Bank's Department of Foreign Exchange, to announce a series of regulatory measures on Friday.

The first measure is a daily US$10 million (NT$298 million) cap on corporate foreign exchange transactions, and the second is the "T+1" settlement requirement for overseas investors, meaning both inbound and outbound currency remittances must be completed within one day of securities transactions, per UDN.

Tsai said he had been in communication with banks to better understand the flow of foreign investment in Taiwan's securities since May. His office was actively determining whether foreign capital was going into Taiwan stocks after large sums were being remitted inward, and whether the funds were transferred out after being sold.

He said the Central Bank found that some foreign investors had kept funds in their accounts for too long, raising suspicions of currency speculation. It planned to meet with custodian banks next week to discourage foreign investors from such practices as new "T+1" regulations go into effect.

According to Tsai, "T+1" means that if foreign investors buy shares today, they must remit funds to complete the transaction by tomorrow. And similarly, if they sell stocks today, they must outwardly remit funds the following day.

Furthermore, some believe the Central Bank could go a step further and require prior approval for major inflows of foreign capital. This would dramatically curtail the flow of foreign funds.

Tsai warned that those who do not manage their operations and abide by government regulations regarding large inflows and outflows of capital will attract the close scrutiny of the Central Bank, which will enforce compliance.

Tsai added the Central Bank will also enforce the current practice of limiting total foreign investment to no more than 30% of a single inverse exchange-traded fund to discourage foreign cash flows. It also mandates the use of swap arrangements for ETF investments to limit market instability.

As for requiring manufacturers to abide by a daily upper limit of US$10 million in foreign exchange transactions, Tsai said that only large manufacturers will be affected by this quota. He said that SMEs generally only have foreign exchange transactions between three to five million US dollars a day, with new limits capping foreign exchange transactions, reducing volatility.