CURRENCY:
To curb NT dollar volatility, the central bank is weighing requiring foreign stock investors to show proof of stock orders before purchasing NT dollars
The central bank is seeking feedback on a plan to tighten currency purchases by foreign stock investors, people familiar with the matter said, a move that could limit speculative bets after a surge in the New Taiwan dollar this year.
The central bank is mulling a policy that requires international investors wanting to buy stocks to show proof of orders before they can purchase the NT dollar, said the people, who asked not to be identified as they were not authorized to speak publicly.
The currency conversion would take place the following day, the people said.
Photo: CNA
The proposal is the latest attempt to push back at the local currency’s almost 14 percent rise against the greenback this year, which has squeezed insurers and hurt the nation’s export-reliant economy.
The central bank last month told foreign investors to exit currency bets taken through exchange-traded funds.
The proposed rule change would make it harder for foreign investors to use currency transfers to speculate on the NT dollar, but it could also add a layer of risk to equity trades, creating a lag between when foreign funds agree to buy securities and when they actually have the local currency to pay for them.
The current rule is that foreign investors are allowed to request currency conversion on the day they place orders for Taiwanese equities, and they do not need to provide any proof of those orders, the people said.
The proposed rule change is possible because local stock trades have a settlement period of two days, they said.
The central bank is set to introduce new measures to curb speculative currency trading by foreign investors, aiming to mitigate recent volatility in the New Taiwan dollar, Department of Foreign Exchange Director-General Eugene Tsai (蔡炯民) said yesterday.
The central bank would meet with custodial banks representing foreign institutional investors next week to discuss enhanced regulatory oversight, Tsai said.
Under the current system, foreign investors can remit funds into Taiwan and hold capital in NT accounts before purchasing local equities. These funds can be converted to NT dollars on the same day of stock purchases to comply with the standard T+2 settlement cycle for equity trades.
However, the central bank plans to revise the rule for investors with “poor self-discipline,” requiring them to shift to a tighter T+1 settlement model.
“This means they will only be allowed to convert funds into NT dollars after executing their stock purchases,” Tsai said, adding that the adjustment aims to enhance transparency and reduce the risk of hot money flows speculating on currency movements.
Funds would no longer be allowed to remain idle in NT accounts for extended periods, the official said.
The proposed measure is not a blanket restriction, but specifically targets foreign investors with poor compliance, Tsai said.
Additional reporting by Crystal Hsu
