Taiwan – the macro case for the TWD

Paul Cavey -

Conventional wisdom is that the early May surge in the currency was driven by financial flows, as Taiwan’s big insurance companies sought to cover their USD exposure.

That is undoubtedly part of the story, but I think the causes are more fundamental. In this video, I argue that the economic factors that that helped anchor the TWD in its tight 28-33 range from the late 1990s are now changing. That doesn’t guarantee that the range will now break, but it makes such a change more likely than it has been for many years.

The video has four parts:

  • The history of the 2000s and 2010s. This was a period the economy was dealing with hollowing out to China, depressed wages and near deflation. That matters for the currency, because there’s little pressure for appreciation when interest rates don’t need to rise relative to the rest of the world.
  • The period after 2015, and particularly since 2020. It is under-appreciated just how much Taiwan’s economy has changed in the last 5-10 years. The surge in exports since the pandemic has been remarkable, and big enough to produce a clear step-change in Taiwan’s economic trajectory, pushing up wages and ending deflation. Taiwan is no longer an underperforming economy.
  • Currency fundamentals. This change in the cycle makes the fundamentals for the currency more important. With the huge stock of external assets, enormous current account surplus and low public debt, economically, the TWD has many of the components of a safe haven currency.
  • What to watch. The market has been focused on the US using tariffs to pressure the TWD higher. The central bank has denied that, but in any case, for the currency, tariffs are a double-edged sword. Policymakers in export-driven Taiwan won’t want a stronger currency if tariffs push the world into recession.

Chapters:

  • 00:00 - Introduction: A New Perspective on TWD Surge
  • 01:30 - Conventional vs. Contrarian: Beyond Financial Flows
  • 03:00 - Part 1: Historical Anchor of TWD Stability
  • 05:00 - Hollowing Out: China’s Impact in the 2000s
  • 07:30 - Deflation Era: Why TWD Stayed Weak
  • 10:00 - Part 2: Taiwan’s Economic Rebirth Post-2015
  • 12:30 - Manufacturing Revival: Return from China
  • 15:00 - Post-2020 Boom: Tech Exports and Wages
  • 18:00 - End of Deflation: A New Economic Normal
  • 21:00 - Part 3: TWD as a Mispriced Safe Haven
  • 23:30 - Current Account Surplus: Taiwan’s Strength
  • 26:00 - Foreign Assets: A Global Powerhouse
  • 28:30 - Low Public Debt: Fiscal Resilience
  • 31:00 - Part 4: What Drives TWD Next
  • 33:30 - U.S. Tariffs: A Double-Edged Sword
  • 36:00 - Domestic Politics: Wages and Currency Debate
  • 39:00 - Central Bank’s Role: Balancing Exports
  • 42:00 - Conclusion: Will the 28–33 Range Break?
  • 44:30 - Key Takeaways and Viewer Engagement