Hot money hits NT$520 bil. in Taiwan: Perng

The China Post news staff

TAIPEI, Taiwan — There is as much as NT$520 billion worth of international hot money staying in Taiwan, some NT$370 billion of which is allegedly aimed at speculating on the local currency, Central Bank of China (CBC) Governor Perng Fai-nan, said yesterday. Perng said at the Finance Committee of the Legislative Yuan that aggregate inward remittances that have been made by foreign institutional investors that have yet to be funneled into the local stock market are estimated at NT$520 billion, including NT$250 billion used to purchase government bonds, NT$210 billion in the form of bank deposits, and NT$60 billion serving as cash collateral for securities short sales. The CBC governor continued that the maximum amount of foreign equity funds for reasonable applications in Taiwan is estimated at NT$150 billion, and therefore the remaining NT$370 billion out of the existing NT$520 billion in international hot money is designed to speculate on the appreciation of the local currency.

The amount includes NT$120 billion in inward remittances that have not been used to invest in stocks but remain in transaction accounts, and another NT$250 billion that has been used to purchase two-year government bonds, Perng said. According to Perng, as the interest rates for two-year government bonds are lower than those for U.S. dollar deposits, the real purpose of the purchases is likely to be to speculate on the appreciating Taiwanese currency.

Perng said the CBC and the Financial Supervisory Commission have joined forces to mitigate the impact of hot money on Taiwan’s currency, including in the equities market. The government, for example, has recently revised relevant regulations to prohibit foreign investors from using New Taiwan dollars as cash collateral for securities short sales, allowing only U.S. dollars to be used for the purpose.

That has helped reduce the amount of suspected hot money hidden in the sector from NT$120 billion to NT$60 billion, Perng said, adding that such a figure would eventually shrink to zero as a result of CBC aggressively persuading foreign institutional investors to drop the practice. Perng told lawmakers that the CBC will closely monitor the flow of the NT$370 billion in suspected hot money, and will move to foreign investors holding the hot money to step up their investment in the local stock exchange market or remit the money out of Taiwan. At the Finance Committee meeting, Perng was asked by lawmakers to reveal the CBC’s stance on whether hot money should be taxed or not. Perng said the CBC is not the relevant authority to tax and its “moral persuasion” has worked well in persuading foreign investors to remit outward their hot money. His remarks indicated that it’s not an urgent task for the government to tax hot money for the moment. Earlier, Finance Minister Lee Shu-der also said at a Finance Committee meeting that taxing hot money is a measure that is too slow to effectively curb the inflow of such money.