In effect, [the CBC] has printed and sold lots of Taiwan dollars to buy the American sort. That has helped keep Taiwanese exports competitive, but has also generated big distortions.

Taiwan’s current-account surplus has swollen; its foreign-currency reserves have piled up and house prices have soared. All these imbalances have grown steadily in recent decades

A Taiwanese Big Mac, it turns out, costs 56% less than an American one. America is a fraction wealthier than Taiwan, but that affects things only on the margins. Adjusting for this, we calculate that the Taiwan dollar is 55% undervalued...

And the surge in chip exports over the past five years, as big as it has been, cannot explain the 25-year growth of Taiwan’s current-account surplus.

The CBC is not simply being reckless. Its policies are rooted in Taiwan’s sense of vulnerability. Because of China’s attempts to isolate Taiwan diplomatically, it is not a member of the IMF. It would have no obvious recourse in a currency crisis. A war with the mainland would create a hard-currency crunch.

Half of exports by listed Taiwanese manufacturers could be rendered unprofitable by a 10% rise in the currency, estimates Goldman Sachs, a bank. Low-tech firms account for around 70% of jobs in manufacturing. They compete primarily on price, making a cheap currency a near-existential need.

致富的特權：二十年來我們為央行政策付出的代價

In “The Privilege of Getting Rich”, a polemic against the CBC published in 2021, four Taiwanese economists argue that, in its hostility to criticism, the central bank “behaves like that of a less developed country”.

“The KMT believed that if they wanted to control the economy, they had to control not only the central bank but also the commercial banks. This mindset has not changed today,” says Wu Tsong-Min, a former member of the CBC’s board and author of a forthcoming history of Taiwan’s economic institutions.

Taiwan’s suppression of its currency may have served it well in the past, but as time goes on it looks less and less tenable.

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