Odd Lots
Brad Setser on the Big Surge in the Taiwanese Dollar
May 6, 2025
Brad Setser, a senior fellow at the Council on Foreign Relations and expert on global capital flows, dives into the surprising rise of the Taiwanese dollar. He discusses its impact on Taiwanese life insurers, who face significant challenges due to currency fluctuations. The conversation explores the dynamics between the appreciation of the Taiwanese dollar and the weakening U.S. dollar, and strategies Taiwan might adopt to stabilize its economy. Setser also links these developments to broader regional economic conditions and trade relationships.
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Quick takeaways
- The recent 5% surge in the Taiwanese dollar highlights significant risks for local life insurers heavily invested in U.S. dollar assets.
- Taiwan's central bank is cautiously balancing currency intervention to encourage prudent risk management while maintaining financial stability amidst global shifts.
Deep dives
The Role of Taiwanese Life Insurers in Global Markets
Taiwanese life insurance companies play a significant role in the global financial landscape, particularly as major investors in U.S. treasury bonds and corporate debts. For years, they have built substantial portfolios of foreign assets, relying on a consistent strategy of purchasing dollar-denominated securities fueled by Taiwan's current account surplus. The insurance entities benefited from support mechanisms provided by Taiwan's central bank, which helped mitigate risks associated with currency fluctuations. This relationship transformed Taiwanese life insurers into crucial players in U.S. financial markets, with their activities significantly impacting U.S. treasury yields and corporate bond demand.
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