US debt is 'sound', no concerns about US dollar's reserve role, Taiwan's central bank says

Taiwan's central bank reassured markets that U.S. government debt remains "sound" and the U.S. dollar's status as the leading international reserve currency is secure, despite recent market volatility triggered by U.S. trade policies and concerns over a weaker dollar. The central bank, holding over 80% of its $582.8 billion in foreign exchange reserves in U.S. Treasury bonds, also cautioned against speculation on the Taiwan dollar's exchange rate and noted some foreign investors were suspected of using remitted funds for currency speculation rather than intended stock investments.

Analysis

Taiwan's central bank has issued a statement reaffirming the soundness of U.S. government debt and the U.S. dollar's enduring status as the leading international reserve currency, a moderately positive signal aimed at stabilizing market sentiment. This declaration comes amidst heightened market concerns following U.S. tariff announcements, such as the one on April 2, and speculation regarding potential U.S. policy favoring a weaker dollar, which had cast doubt on the currency's safe-haven appeal. With over 80% of its substantial $582.8 billion foreign exchange reserves held in U.S. Treasury bonds, Taiwan's assessment carries weight, emphasizing that U.S. public debt remains stable, liquid, and a preferred store of value for investors. Concurrently, the central bank addressed domestic currency issues, cautioning against speculation on the Taiwan dollar, which has recently appreciated against the U.S. dollar, and denied any U.S. request for the currency to strengthen. It also highlighted findings that some foreign investors may have channeled funds intended for Taiwan stock investments towards currency speculation, warning against such practices and mandating funds be used for their declared purpose.

Key Decisions for Investors

• Investors should view Taiwan's central bank's statement as a supportive factor for U.S. Treasury stability and the U.S. dollar's reserve status, albeit within a market still sensitive to U.S. trade policy shifts and associated currency impacts.
• Participants in the Taiwan dollar market should exercise caution, considering the central bank's explicit warning against speculation, its active monitoring of large fund inflows, and its denial of external pressure for currency appreciation.
• Foreign investors allocating capital to Taiwanese equities must ensure strict adherence to declared investment intentions to mitigate risks associated with heightened regulatory scrutiny on potential currency speculation.