In its recent article "The hidden risks in Taiwan’s boom," The Economist claims Taiwan keeps the New Taiwan dollar (NTD) undervalued to support exports, creating risks like lower purchasing power and financial imbalances.
Taiwan’s central bank later pushed back against the allegations, stating that The Economist’s claim relies heavily on the Big Mac Index, which the bank says is an inappropriate tool for determining whether a currency is overvalued or undervalued. The bank emphasized that exchange rates are driven by broader financial dynamics and that the value of the New Taiwan dollar is determined by market supply and demand.
00:00In a cover story published last week, The Economist claimed that Taiwan keeps its currency cheap to help its economy boom.
00:08But why would a country be invested in keeping its currency weak?
00:12Well, The Economist claimed that Taiwan is an export-dependent economy,
00:17meaning that the cheaper Taiwan's money is, well, its goods and services will be more attractive to people who are buying things with overseas currency.
00:25Whenever a country undervalues its currency to gain a competitive edge, that's called currency manipulation.
00:32Take buying one cup of bubble tea, for example.
00:35So, in early 2025, the U.S. dollar was about 30 times stronger than the new Taiwan dollar, which is Taiwan's currency.
00:43So, one U.S. dollar equals 30 new Taiwan dollars.
00:47So, what if the U.S. wants to import Taiwanese bubble tea?
00:50To buy one large cup that costs 60 new Taiwan dollars in Taiwan?
00:55The U.S. would have to pay two U.S. dollars.
00:57Now, let's say the U.S. dollar was suddenly 35 times stronger than the Taiwan dollar.
01:01So, if the U.S. bought one large bubble milk tea in this case at that same 60 new Taiwan dollar price,
01:08instead of costing two U.S. dollars, it would cost a buck 70.
01:12The Taiwan product is now cheaper for the U.S. to import.
01:15But Taiwan doesn't just export a lot, it imports a lot.
01:18So, for consumers to buy any of those imported goods, a cheaper currency is going to put them at a disadvantage.
01:24So, a cheaper currency only really benefits exporters and big businesses, with regular consumers getting the short end of the stick.
01:32So, here's the million dollar question.
02:00Does Taiwan manipulate its currency?
02:03Well, a few days ago, Taiwan's central bank and the U.S. Treasury released a rare joint statement saying that neither side will engage in currency manipulation to gain an unfair advantage.
02:13The U.S. Treasury, however, listed Taiwan as a currency manipulator in 1988 and again in 1992.
02:20And while the U.S. currently says that none of its major trading partners are manipulating currency to gain an edge,
02:26it did put Taiwan on a watch list alongside six other countries, including China, this past June.
02:33In the wake of The Economist article, Taiwan's monetary policy is being closely watched once again.
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