After the Taiwan-U.S. exchange rate agreement, the New Taiwan Dollar surged by 1.15%. The Economist warns that a low exchange rate could pose systemic risks to Taiwan's financial industry.

The Economist pointed out in its column that while Taiwan is highly praised for its advanced global semiconductor manufacturing capabilities, another overlooked phenomenon—the long-term large current account surplus and undervalued Exchange Rate—has seriously distorted Taiwan's economic structure. The Economist bluntly stated that Taiwan's weak monetary policy has surpassed the necessary period, not only compressing consumer welfare but also driving up housing prices and accumulating financial risks, making it time for change.

Long-term undervalued New Taiwan Dollar: One of the most undervalued currencies in the world.

The article points out that the Taiwan Central Bank (CBC) has maintained a low New Taiwan Dollar for many years to enhance export competitiveness. According to The Economist's GDP-adjusted Big Mac Index, the New Taiwan Dollar is undervalued against the US Dollar by as much as 55%, the highest in the world. After AI demand boosted exports, these economic imbalances have expanded more rapidly. In October 2025, Taiwan's merchandise trade surplus annualized to 31% of GDP, setting a historical high and four times that of pre-pandemic levels.

Low Exchange Rate is no longer necessary: Taiwan is already a high-income economy.

The Economist points out that the rationale for maintaining a low Exchange Rate to support exports no longer exists. Taiwan is no longer an early industrialized country, and its per capita GDP has surpassed that of Japan. Taiwan's foreign exchange reserves have reached 600 billion USD, sufficient to cope with blockades or financial crises. Top technology companies account for 70% of exports and 40% of nominal GDP, and their competitiveness can withstand a stronger New Taiwan Dollar.

Report estimates: The appreciation of the New Taiwan Dollar by 20% will cause TSMC's operating profit margin to decline by about 8 percentage points, but it will still be higher than that of Alphabet or Apple.

The low Exchange Rate has decreased the purchasing power of the public.

The result of favorable policies for the export industry is that low purchasing power is passed on to consumers, and Taiwanese people save too much and consume too little. Since 1998, private consumption has significantly decreased by 20 percentage points in its share of GDP. The Economist believes that the original intention of this policy was to make Taiwan richer, but it has instead deprived ordinary people of their achievements.

Taiwan's housing price issue, The Economist: Related to the central bank printing money to buy foreign exchange.

The central bank has been purchasing foreign exchange by printing new Taiwan dollars for many years, resulting in excess liquidity in the financial system, low interest rates, and accelerating the rise of housing prices. Since 1998, housing prices in Taiwan have surged fourfold.

The financial system is forced to bet on dollar assets, accumulating huge exchange rate risks.

To digest the persistent surplus, the authorities have tacitly allowed Taiwan's life insurance industry to invest heavily overseas: the scale of life insurance funds invested abroad is nearly 1 trillion USD, with the vast majority in US government bonds. However, this has caused serious currency mismatches, as the liabilities of life insurance companies are denominated in New Taiwan Dollars while most assets are denominated in US Dollars. If the New Taiwan Dollar appreciates rapidly or the US Dollar depreciates sharply, the asset-liability balance could be instantly disrupted, potentially triggering a crisis in the life insurance industry.

Why doesn't the Central Bank of Taiwan reform its monetary policy? Politics and industrial structure are the main reasons.

The Economist pointed out two major factors:

Political pressure on the export manufacturing industry: While top tech companies can withstand appreciation, small manufacturing businesses that rely heavily on thin profit margins from exports will be severely impacted. These companies employ about 70% of manufacturing workers, making the government reluctant to easily implement reforms.

The central bank has unusually enormous power: the huge foreign exchange earnings brought by monetary policy make the central bank an important source of revenue for the government. The central bank's surplus accounts for 6% of government revenue, far exceeding the average value of 0.4% in advanced countries. This also gives the central bank a high degree of political influence.

Two major risks approaching: life insurance crisis and US pressure

The Economist warns that two major risks are approaching:

If the US dollar continues to depreciate, Taiwan's life insurance may become a systemic risk: the life insurance industry is too large and its assets are dollarized. Once the dollar weakens, it may trigger volatility.

U.S. trade pressure may force Taiwan to appreciate: The U.S. is sensitive to trade deficits and may use security commitments to pressure Taiwan.

The Economist further pointed out that Taiwan, unlike Japan and South Korea, has signed trade agreements with the Trump administration, posing a greater risk. In May this year, when the market was concerned about tensions between the US and Taiwan, the New Taiwan Dollar briefly appreciated by 9%.

The Economist: Taiwan must rebuild its economic model and gradually allow the Exchange Rate to return to equilibrium.

The Economist believes that although reforms carry political and financial risks, they are still the optimal solution: Taiwan's government debt is only 23% of GDP, leaving room to assist impacted industries and workers. The life insurance industry, given sufficient time, can gradually adjust its exposure to the US dollar. Unlike Argentina, which needs to prevent rapid depreciation, allowing the currency to appreciate gradually is easier to manage. The key is for the central bank to announce a long-term appreciation path and management model for the New Taiwan Dollar, referencing the practices of Singapore and China. In this way, the people of Taiwan can finally enjoy the benefits of their world-class export miracle, rather than becoming victims of a low exchange rate.

Counterarguments: The Economist article is overly one-sided, and Taiwan's housing price increase is only average globally.

Chenglap's article notes that the essence of the text is advocating for the appreciation of the New Taiwan Dollar, but the discussion is intentionally one-sided and does not present a comprehensive view of Taiwan's economic structure. He points out that the article describes “low exchange rates equate to taxing consumers” as a significant issue, while ignoring that currency appreciation similarly taxes producers, and it only emphasizes that Taiwan is an import-oriented economy, while avoiding the fact that Taiwan is also highly dependent on exports.

He also cited the global rise in housing prices from 2020 to 2025 as an example to refute The Economist's attribution of high housing prices to underestimated exchange rates, pointing out that the rise in Taiwan's housing prices is similar to the global average and even lower than that of some countries. If we were to argue that Taiwan's high housing prices are due to a depreciated currency, then Taiwan should have a rise that is above average. However, Taiwan's rise is only at the global average.

Additionally, the Chinese real estate market, which is similarly undervalued, has collapsed, indicating that the exchange rate is not the main cause. Chenglap also believes that The Economist acknowledges that 70% of Taiwan's manufacturing jobs depend on low-margin traditional industries, yet still advocates for appreciation, meaning that traditional industries must be sacrificed. If supporters of appreciation simultaneously criticize that only the technology industry in Taiwan is profitable while traditional industries are suffering, it is indeed self-contradictory.

He further questioned the article's assertion that “insurance industry risks” and “avoiding Trump tariffs” are reasons for appreciation, and mocked the article for being unsigned and lacking specific policy proposals, merely glossing over with the notion that risks are manageable. He described that The Economist seems to want Taiwan to abandon its current economic model, yet ignores the potential unemployment and industrial collapse that could result, criticizing its arguments as more akin to emotional mobilization than rigorous analysis.

The US and Taiwan reached a consensus on the Exchange Rate, with the New Taiwan Dollar surging 1.15%, currently quoted at 30.761.

On the same day that The Economist column was published, the Central Bank of Taiwan announced that it has reached a consensus with the U.S. Treasury on monetary policy. Starting from the end of December, the Central Bank will increase the frequency of disclosures regarding foreign exchange market interventions from the original once every six months to once every quarter, in order to enhance policy transparency and international trust. The exchange rate of the U.S. dollar against the New Taiwan dollar plummeted by 1.15% from 31.118, reaching 30.761 before this report was finalized. The Central Bank specifically clarified that the U.S. Treasury “never requested the New Taiwan dollar to appreciate” during the negotiation process. It also reiterated three core principles:

Do not manipulate the Exchange Rate to gain competitive advantage or distort the international balance of payments.

Intervention should be limited to addressing “excessive fluctuations” or “disorderly movements” of the Exchange Rate.

Foreign exchange intervention should be conducted in both directions to avoid unilateral appreciation or depreciation.

( Joint Statement on Taiwan-U.S. Exchange Rate: The Central Bank emphasizes that it is not involved in tariff negotiations, and the appreciation of the New Taiwan Dollar is not a request from the U.S. side )

This article discusses the surge of the New Taiwan Dollar by 1.15% after the Taiwan-U.S. exchange rate agreement. The Economist warns that low exchange rates could cause systemic risks in Taiwan's financial industry, first appearing in Chain News ABMedia.