Odd Lots Brad Setser on the Big Surge in the Taiwanese Dollar
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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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Taiwan's Huge Current Surplus
- Taiwan runs one of the world's largest current account surpluses, near 15% of GDP, over $100 billion annually.
- Taiwanese life insurers have massively built portfolios of foreign bonds, notably dollar assets, facilitated by central bank policies.
Life Insurers Stay Under-Hedged
- Taiwanese life insurers remain significantly under-hedged due to the high cost of currency hedging amid elevated U.S. rates.
- Regulators allowed a volatility reserve substitution, encouraging the insurers to stay more unhedged in early 2024.
Dollar Weakness and China's Yuan
- The U.S. dollar sharply weakened post-April 2 partly because Asian currencies were very weak to start.
- China chose not to depreciate its yuan despite high tariffs, influencing currency dynamics and market expectations.