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Given everything in the world: Mike Waltz leaves the chat; papal elections; GTA is delayed until 2026; Etc – He would be forgiven for not paying much attention to the Asian FX.
But here there is a Humdinger of a table that shows the change rate of the Taiwanese dollar against the US dollar:
We have reversed the and to show how the Taiwanese dollar has shot against the US dollar in recent days. Bloomberg informs us that this is the greatest increase since 1988. This is what Borg says:
The Taiwan dollar increased more in almost four decades as a combination of optimistic growth data, bets to facilitate commercial tensions and strong profits of the turbocharged currency of the US gains. UU.
It closed approximately 3% higher against Greenback in 31.06 on Friday, marking the greatest advance of a currency since 1988. The island’s reference stock index also rose 2.7% to exceed the capital indicators of the region.
The Taiwan dollar, which rarely appears in the headlines, was at the center of the currency market stage on Friday as the feeling towards the island’s assets improved dramatically after China said it is evaluating possible commercial conversations with the United States. The data that shows the economy of the island expands at a faster rate than expected and hopes that US technological giants import more semiconductors in the region also helped optimism fans.
Unfortunately, it is too late to call all our favorite TWD distributors, but Alphaville is quite sure that these reasons are extremely faint. The idea that a gust of bets that the commercial war will suddenly sent the Taiwanese dollar to the moon is, frankly, a bit fantastic.
We will present some feelings during the weekend, but for us this seems much more likely to be linked to a problem that we highlight at the beginning of the year: Taiwan has become a financial superpower thanks to their life insurance companies that accumulate a battery of assets abroad of $ 1.7TN, most of which are US bonds.
However, as Brad Setser and Joshua Younger wrote at that time, “what might seem a reflection and a source of financial and economic force can easily be an obvious weakness.”
Apparently, Taiwanese life insurers have not been super diligent about covering their currency exhibitions abroad, opening a great mismatch among their liabilities in Taiwanese dollars and their assets in US dollars.
When the decrease in the US dollar of 2025 suddenly began to accelerate and expand earlier this month, it probably triggered cold sweats in certain corners of Taipei. As setser and Younger wrote for Alphaville in January (our emphasis below):
The variants of this story have developed in Asia. The difference is simply one of scale. Taiwan’s open position is simply much larger and more precarious than that of, for example, that of Japan. And for complicated reasons (related to Taiwan’s closed financial account), it really cannot be improved unless life insurers are allowed to borrow a ton from the central bank.
That means that any great increase in the value of the Taiwan dollar, an increase that is implicit in the large size of Taiwan’s commercial surplus and the fact that it is still weaker against the dollar that 30 years ago could destroy the finances of the huge Taiwan insurance industry.
To put it clearly, Taiwan’s life insurance industry has opted for its solvency (with the support of its regulators) assuming that the Central Bank of Taiwan can avoid a significant appreciation of the Taiwan dollar.
Therefore, our bet is that the sudden increase of the Taiwanese dollar is caused by local life insurance companies that strive to cover their dollars. It will be interesting to see how it goes next week.
But there are suggestions that it is already causing some infection in places like South Korea, where the Won has also suddenly jumped. We begin that some insurers have used it as proxy coverage due to dollar coverage costs. NB, once again, we have reversed the axis and to show better how the won can be seen.
Normally, the appreciations of abrupt currencies are much easier to handle for countries than violent notes. After all, the local Central Bank can always create an infinite amount of its own currency, and simply buy assets abroad with it (namely SNB).
However, the Central Bank of the Republic of China, as Taiwan is formally called, is in a pickle.
It has always been distrustful of being weakening the Taiwanese dollar too openly, for fear of being labeled as a currency manipulator by the treasure of the United States. (This is the reason why Taiwanese life insurers in practice in the name of Taiwan were a blessing).
But it will be exceptionally I distrust of intervening to weaken its currency at a time when the Trump administration is already on the path of the commercial war. After all, Taiwan depends almost completely on the United States for military protection, and the authorities will be reluctant to do anything that can bother Washington at a sensitive moment.
Unfortunately, this could also cause problems outside the country. As the young and Setser pointed out in a tracking piece, what happens in Taiwan does not always stay in Taiwan.
