Balance of payments surplus hits new high in Q4

Taipei-Taiwan posted a record balance of payments surplus in the fourth quarter of last year as the central bank intervened in the local foreign exchange market to reduce volatility faced by the Taiwan dollar, according to the bank.

In the fourth quarter, the central bank registered an increase of US$27.84 billion in asset reserves or balance of payments surplus, a new quarterly high in Taiwan, as the bank sought to slow down the appreciation of the Taiwan dollar by buying U.S. dollars.

The central bank said the intervention in the forex market was necessary to reduce volatility at a time when the major central banks, in particular the U.S. Federal Reserve, kept pumping funds into the market to mitigate the economic impact of COVID-19.

The central bank added Taiwan was not the only country to intervene to stabilize its currency.

Due to the central bank's intervention, Taiwan also saw its forex reserves repeatedly hit new highs, according to the central bank.

Meanwhile, the central bank said Taiwan recorded an increased current account surplus in the fourth quarter of last year largely on the back of a strong showing by tech gadget exports due to solid global demand for emerging applications as well as devices used for remote work and online learning amid COVID-19, according to the central bank.

Data compiled by the central bank indicated Taiwan's current account surplus for the October-December period stood at US$27.33 billion after the merchandise trade surplus expanded to US$23.04 billion in the quarter, up US$8.90 billion from a quarter earlier.

In addition to the higher shipments of tech devices, old economy industries also saw their exports pick up in the fourth quarter, helping them climb out of the downturn caused by the pandemic, the central bank's data showed.

The current account mainly measures a country's merchandise and service exports and imports.

In the fourth quarter, Taiwan's services account registered a surplus of US$1.38 billion, reversing a US$1.02 billion deficit over the same period of the previous year and reflecting an increase in freight proceeds and fall in travel deficit, the central bank said.

The central bank said Taiwan had a net fund outflow of US$2.22 billion on the fourth quarter financial account, which measures the flow of direct investment and portfolio investment, marking the 42nd consecutive quarter of net fund outflows. However, the fourth quarter net fund outflow fell from US$10.96 billion a year earlier.

Residents' direct investment abroad recorded a net increase of US$3.54 billion while direct investment by foreign investors in Taiwan posted a net increase of US$3.56 billion, the central bank said.

The central bank said portfolio investments overseas by Taiwanese interests registered a net increase of US$6.29 billion on the back of a rise in debt securities investments by banks and insurance companies, while portfolio investments by foreigners in Taiwan also recorded a net increase of US$4.38 billion.

Over the past 42 quarters, Taiwan has seen a net fund outflow of US$528.63 billion, which is equivalent to seven years of tax revenue, raising concerns that continued fund outflows will hurt the country economically.

However, the central bank has said that countries with high current account surpluses tend to show net fund outflows, citing Japan, Singapore, South Korea, Germany and Thailand in addition to Taiwan.

In 2020, Taiwan recorded a current account surplus of US$94.28 billion, a new high and a net fund outflow of US$50.04 billion on the financial account, while the central bank's asset reserves increased by US$48.34 billion.

Source: Focus Taiwan News Channel