Taiwan bans hot funds flow into banks | Shanghai Daily

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November 12, 2009

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Taiwan bans hot funds flow into banks

TAIWAN has banned foreign investors from placing money in certain bank accounts to slow an influx of international hot money created by massive government stimulus measures around the world.

Tuesday's measures came after Taiwan's banking authorities warned against the tide of foreign funds flowing into the island. The authorities said the amount of money invested by foreigners ?? about NT$500 billion (US$15.5 billion) ?? was five times the acceptable level.

The new rules bar foreign investors from sinking money into time bank deposits, as well as extending them when they mature.

Despite Taiwan's measure, some questioned whether the export-reliant island would succeed in holding down the value of the New Taiwan dollar.

"I think the currency will keep rising because the economy is poised to grow and there's expanding business with China's mainland," said Doug Waraksa of Taipei-based SinoPac Security. "But it will help with volatility."

In the past six months the currency has gained 1.8 percent vis a vis the American dollar. However, it has been prone to significant fluctuations. The local stock market, meanwhile, has surged more than 65 percent since the start of the year.

The move comes as developing economies are getting hit with substantial foreign capital inflows brought on by monetary easing everywhere to fight the global downturn.

Fast-growing economies from Asia to South America can be especially vulnerable to an influx of foreign investment, which can drive up local currencies and undermine the competitiveness of these countries' exports. Too much foreign money can also create dangerous bubbles in stock, real estate and other asset markets. A sudden outflow of foreign funds can cripple a country as global investors exchange back into US dollars and leave the local economy short of greenbacks.




 

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