EFTA01379400.pdf

22 December 2017 EM Currency Handbook 2018: Still Fuel in the Tank Taiwan The Central Bank of China is responsible for conducting USD/TVVD exchange rate both monetary and exchange rate policies. There is no 40 formal inflation target, but the CBC has a medium-term objective of keeping M2 growth in a range. The central bank's main policy instrument is the discount rate, 35 though in practice it uses several tools such as OMOs and the FX rate to influence monetary conditions. 93 Over the past two decades, the TWD market has been managed actively by the central bank. The objective is to smooth day-to-day volatility in the spot market and 25 ensure that currency moves reflect fundamentals and real economic transactions rather than speculative activity. Preventing excessive appreciation of the TWD 20 is also desirable to maintain export competitiveness. Such active management had led CBC to become one 90 is 00 06 10 IS of the largest holders of foreign reserves. CBC has historically tended to enjoy positive carry on its USDITVVD spot rate and 3M NDF premium reserves sterilization given low domestic rates. 35 —7WD Spot 0.6 Taiwan continues to enjoy large current account 34 —TWD3PA Forward Points, REIS surpluses, and is consequently a significant net investor 0.4 to the world with large overseas portfolio investment 33 0.2 by local asset managers. Acwiated hedging activities have a meaningful - generally depressive - impact on az 0.0 the NDF curve, resulting in negative carry to the TWD. 31 This has led it to regularly be seen as a regional funder 02 carry trades. 30 29 A recent improvement in ties with the Mainland has led to several initiatives to facilitate cross-border 28 investment and direct conversion of RMB into TWD at 10 11 12 13 la 16 16 17 licensed institutions. In 2013, direct clearing and offshore trading of RMB began in Taiwan with the launch of yuan-denominated operations such as USD/1WD 3M historical vs implied volatility deposits, loans and remittances. The NT dollar is • Nom Speed 'an' —3M Invited —3M Rethzed convertible for current account transactions, but more 18 restricted on the capital account. la 12 10 6 4 2 0 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Sant a darn Aiskon lieson't Sitombn firma LP Page 46 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0076849 CONFIDENTIAL SDNY_GM_00223033 EFTA01379400