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New Taiwan Dollar Depreciation: Causes, Impacts, and Future Trends

1. Global Financial Market and Geopolitical Uncertainty

Capital outflows and forex outflows are occurring in all regions except the United States, regardless of the local economic fundamentals.

2. Warning from Taiwanese Experts

Economic experts in Taiwan have recently warned that the New Taiwan Dollar may continue to depreciate in the fourth quarter of this year, increasing inflationary pressures.

3. Continued Depreciation and High Inflation Pressure

Multiple price indices in Taiwan have shown high year-on-year increases, while the New Taiwan Dollar continues to depreciate, leading to high inflationary pressures. This situation has raised concerns among the local population.

4. Factors Contributing to New Taiwan Dollar's Depreciation

Despite efforts by exporters and official banks to prevent depreciation, the New Taiwan Dollar hit a 16-month low, with a decline of 1.42 cents, closing at 28.755 NTD. The daily depreciation was the largest in over a month, and the total trading volume reached 2.201 billion NTD.

5. Impact on the General Population

The depreciation of the currency and the rise in prices lead to a reduction in the value of assets held by the population. Additionally, the real purchasing power of individuals decreases, as the same amount of money can buy fewer goods compared to before the depreciation. This leads to a decline in the overall living standards.

6. Historical Background of New Taiwan Dollar Issuance

The official explanation for the issuance of the New Taiwan Dollar is that it was a result of the financial crisis in Shanghai in 1948, which caused the significant devaluation of the old Taiwan dollar, resulting in a sharp increase in prices in Taiwan Province. However, another version suggests that the issuance was due to the Nationalist government in Taiwan needing to stabilize the economy by replacing the old currency.

7. Overall Trend and Relationship with the US Dollar

In general, the New Taiwan Dollar has been appreciating. As it is pegged to the US Dollar, the continuous appreciation of the Chinese Yuan and the depreciation of the US Dollar in recent years have contributed to the tendency of the New Taiwan Dollar to depreciate against the Chinese Yuan.

8. Balancing the Devaluation

While some exporters have called for a greater devaluation of the New Taiwan Dollar, there are concerns that a rapid devaluation could lead to more capital outflows and a sharper decline in the Taiwan stock market. Furthermore, increased import costs resulting from devaluation would put additional pressure on inflation control, given Taiwan's heavy reliance on imported raw materials.

9. Reasons for Recent Depreciation

The central bank of Taiwan stated in a press conference after its quarterly policy meeting that the 11.7% depreciation of the New Taiwan Dollar against the US Dollar was mainly due to overseas institutional investors repatriating funds, including profits and dividends from their investments in Taiwanese stocks, back to the United States.

In conclusion, the New Taiwan Dollar is currently facing depreciation pressures due to global market uncertainties and the outflow of international funds. This depreciation has raised inflationary concerns and impoverished the general population. Efforts to stabilize and balance the devaluation must be made while considering the potential consequences on the stock market and inflation control.