The Fall of the Taiwan Dollar
November 11th, 2007 by MarkRecently, Michael and Karl have expressed some surprise and doubt at the claim that the Taiwan dollar has fallen over the past several years. Here are some graphs that should show it quite clearly.
This first graph is based on the Euro, and the TWD is compared to the Korean Won, the US Dollar, the UK Pound, the Canadian Dollar and the Australian Dollar from 2000-2007.
The TWD came in dead last, with the USD barely edging it out.
This second graph is based on the US Dollar, comparing the same currencies over the same period of time.
Once again, the TWD is the clear loser, but what is most striking is how closely it hugs the US dollar graph. This is undoubtedly the result of the Taiwanese government’s unofficial attempts to peg the TWD to the USD. Some have argued that this is part of why consumers here in Taiwan are seeing rising prices.
Now to answer Michael Turton’s question:
Yes, (the TWD has) plummeted from…..28 to the Aus$ all the way to….$30, and that only the other day. In August it hit 25. Clearly there is a great deal of variation. The Korean Won? Well, in May it was 27.7, and on Friday, it was 28.2. Where is the cliff?
The AUD’s outperformance of the TWD is clear from the charts above. Here’s TWD graphed against the KRW:
Yes, there are short-term variations. However, the difference between the long term trends of the TWD and the KRW is stark. The difference is so great, in fact, that it could be argued that that’s the major reason Taiwan has seen less than 1.2% nominal GDP growth per year since the year 2000 while Korea, a very similar economy in many ways, has seen over 8.6% a year.
Update: Since Karl has accused me of “cherry picking” the data, here is ten years of currency data, starting from 1997. Even with the Asian Economic Crisis that decapitated the Korean Dollar, it still beat out the Taiwan Dollar. Furthermore, the Taiwan Dollar lost nearly 20% of its value against the US dollar, and about 40% of its value against the Canadian Dollar and the British Pound. It really would take “cherry picking” to find any long term span in which the Taiwan Dollar has beaten the Korean dollar in recent years.
Related Post: The Weakening of the Taiwan Dollar
Related Post: Economy: Taiwan vs. Korea 2000-2006
November 12th, 2007 at 2:31 am
It seems that as we get closer to elections anyone saying that the economy is anything but rosy is criticized in some circles as a politically motivated attack on the DPP.
November 12th, 2007 at 3:06 am
Yes, it does.
November 12th, 2007 at 7:07 am
[...] Mark on the Taiwan dollar. [...]
November 12th, 2007 at 12:22 pm
Mark, you said in Turton’s comments “The TWD has fallen, even against the dollar (which you can verify on the currency graph in the link on my earlier comment).”
This is so disingenuous that it looks like you are just blowing ideological smoke. The Korean Won lost half of it’s value against the US$ during the Asian Economic crisis, while the NT$ lost around 25%. The appreciation that you are touting does not represent some fundamental strength of the Korean economy vs. Taiwan, it represents the Korean Won climbing out of the pit it was in in the late 90’s.
Poagao, I am not saying that the economy is ‘rosy’, nor am I saying that the Chen administration is ‘competent’ or ‘not a bunch of jerks’. But I am saying that Mark’s claim that “the last six years have been disastrous for Taiwan’s economy” is not backed by any data. With few points of annual GDP growth, and unemployment hovering around 4%, the economy is a “disaster” only compared to the heyday of the early & mid 90’s.
November 12th, 2007 at 1:02 pm
So, the NT is closely tied to the usd and following it down into the shitter, that much is obvious. On the other hand though, there are a lot of other factors why the Taiwanese economy is in the doldrums. Increased competition from abroad, increasing inequality and middle-class insecurity. A general feeling of…malaise.
November 12th, 2007 at 1:57 pm
“On the other hand though, there are a lot of other factors why the Taiwanese economy is in the doldrums.”
What doldrums? Aren’t we on target for 4.4% GDP growth this year? Can an economy be in recession if everyone *believes* it is in recession, no matter what the numbers say?
November 12th, 2007 at 2:19 pm
Karl, you must chill.
The TWD is down against the KRW, even if you count from before the crash. Counting all the way back from that time, the Taiwan dollar is also down against the Canadian dollar (by over 30%), the US dollar (by nearly 20%) and quite a few other currencies as well.
As for other data, see this post:
Economy: Taiwan vs. Korea 2000-2006.
According to the IMF data (linked to in that post), Taiwan’s
realnominal GDP has grown by less than 1.2% per year since 2000, while unemployment has risen. The general feeling of malaise is due to the poor economy, not the other way around.November 12th, 2007 at 3:27 pm
I’m totally chill. Not only am I at work, but I don’t have a partisan dog in this fight. You want 1.2% GDP per capita as our real growth? Fine. It is still not a recession and certainly not a disaster. And you are still cherry-picking your currency data to show that which you have already made up your mind to be the truth.
Update by Admin: Karl is correct in finding fault with a real GDP figure of 1.2%. My data was for nominal GDP
November 12th, 2007 at 10:58 pm
Karl, if you see using seven years of absolutely primary economic data (GDP, currency and unemployment) as “cherry-picking”, what exactly are you looking for?
If you feel that omitting the AEC of the late 90’s isn’t fair, then look at this. Here’s a 10-year chart starting from 1997, of the KRW, CND, AUD, GBP and TWD against the USD. The chart includes the Asian crash that hit Korea so hard, but Taiwan is still dead last, nearly 20% under the USD. Of the numerous currencies I’ve examined, the only one that has done worse over the past ten years is Mexico, which has still managed significantly more real growth than Taiwan, despite the plunging Peso.
Believe me, I don’t want a 1.2% real GDP growth rate. I’m invested heavily in Taiwan and I’d love to see us catch back up with Korea. You’re right that we aren’t in a recession now, but Taiwan’s real GDP is barely above its 2000 level, and that’s not something that should be happening in a developing Asian economy.
November 13th, 2007 at 6:54 am
If I read your chart right, then the NT$ is down about 18% against the US$, and the Won is down… 14% in the same period? If so, then I still can’t see how a difference of 4% makes the NT a “nose-diving currency”.
I guess we are in agreement about GDP figures, and only disagree about the meaning of the word ‘disaster’. Taiwan was going to lose a huge amount of manufacturing to China, regardless whether the administration was blue, green, or purple. Unemployment rate is good. Debt to GDP ratio is reasonable. (I’m not going to look it up, but I’ll bet you a beer it’s better than Korea’s)
November 13th, 2007 at 7:31 am
The KRW got butchered in 1998, and the TWD has been on the way down since 2001. Over the past ten years, the KRW has done nearly as poorly as the TWD (which is terrible). However, over the last five, six, or even seven years, the KRW has done very well. Korea has also done much better than Taiwan in terms of real GDP growth, both recently, and going all the way to before the crash.
The problem isn’t that manufacturing is moving to China. The problem is that the three links policy is preventing Taiwanese businesses from directly accessing an increasingly important market. The frictional costs are considerable, and they negate many of the natural advantages the Taiwanese have in the market.
November 13th, 2007 at 8:44 am
OK, you’re right. Taiwan is in severe recession, and it is all the DPP’s fault. And the fact that I work in manufacturing makes it impossible for me to see the truth, because I’m too close to the issue or something.
I’m going to go do something more productive, like argue with creationists.
November 13th, 2007 at 10:29 am
Karl,
I happen to know Mark personally, and I can assure you he is not an ideologue, and is probably the most apolitical of any long-term expats in Taiwan that I know.
What data is he cherrypicking? He’s presented far more concrete evidence to back up his position than you have for yours. So who is the one blowing ideological smoke?
He’s not claiming anything new or bold here. Every Taiwanese I know is pessimistic about the economy. It’s the first thing they talk about. ‘Taiwan is really in trouble, even South korea has passed us up’ is pretty much all I’ve heard, in fact, since arriving here in June of 2006. How valid this is, is a point for discussion, but valid or not, people here believe it.
And Mark is exactly correct about the three links. I just returned from China a couple of weeks ago. To travel from Shenyang back to Taipei meant I had to get up at 0600 to catch an 0800 flight to Beijing. The flight to HK left at 1300. Then the next available flight to Taipei was at 1830. So I landed in Taipei at approx. 1945 and got home by 2200. In all, I spent over 16 hours on what should have taken no more than 5. If you don’t think this unrealistic policy by Taiwan exacts a great cost on its economy, then yes, you are better off arguing with creationists, or maybe in your case, flat-earthers.
November 13th, 2007 at 11:50 am
Man, those creationists are cranky, and will ban a guy for the slightest bit of profanity.
Here is what I mean by cherry-picking the data: When I came to Taiwan, the NT$ was at 27.26 to the dollar, and the Won was 716. Today the NT is at 32.31 and the Won is at 931. So can I say that the NT$ is now 4% stronger against the dollar? And what would that prove? Nothing, because the NT/US$ exchange rate reflects political decisions more than it reflects economic conditions.
The IMF has Taiwan at real GDP growth of 1.2%? The Economist calls it at 4.6% I don’t know which is more accurate, but my point is that it is not a ‘disaster’. Slow growth? Sluggish growth? All reasonable assessments, but not so useful for trolling the greens on Turton’s blog.
Most Taiwanese I know are also pessimistic about the economy, but most Taiwanese I know also believe in ghosts and lucky numbers. The economy is not as bad at they believe it is. It is not going like gangbusters, but it doesn’t warrant the doom and gloom either.
I’m not opposed to three links, but instituting them years ago would not have guaranteed a huge economic benefit, and would in some cases have facilitated the industry flight. I’ll trump your 16 hours Shenzhen to Taipei with 18 hours Shanghai to Taichung two weeks ago. Not only would I like to see direct air links, but I’d go for a Chunnel under the straight.
Update by Admin: Karl is correct in finding fault with a real GDP figure of 1.2%. My data was for nominal GDP
November 13th, 2007 at 4:17 pm
When they say “Real GDP”, they mean in local currency (i.e. “PPP-adjusted”).
I don’t know when you got to Taiwan, but it really would have to be a “cherry-picked” time for the TWD to have appreciated against the KRW since. In any case, there’s a difference between trolling, and responding to ridiculous claims (i.e. the US and EU chambers of commerce have it all wrong and Taiwan needs more trade barriers with China, just like… Korea!?).
November 13th, 2007 at 4:27 pm
These Aussies say the same as the Economist.
If you respond to ridiculous claims with ridiculous claims of your own, then maybe it’s not trolling. Leprechauning? Goblining?
November 13th, 2007 at 4:47 pm
From that page it’s clear. They’re using PPP-adjusted figures. If you look at the 15,599 to 15,936 increase from 2005-2006 labeled as 4.7% (rather than the 2.2% division would give), it’s obvious. They aren’t doing their calculations in USD. I’m not saying that using USD is the best way to go either (due to its falling value), but at the very least it should be obvious that measuring economic growth based on differing currencies will lead to distortions. That was the entire point of this post– as long as the Taiwan dollar is falling the way it has been since 2001, using PPP values for Taiwan will seriously distort growth estimates.
November 13th, 2007 at 7:18 pm
excuse me. i’m clueless about economics, so i couldn’t really follow the discussion.but i have always thought that having huge investments in china wasn’t a clear win-win. for the US it has meant job loss and cheap wal-mart crap and some cheap non-essential tech toys. how will taiwan laobans plow the money they make in china back into taiwan? can’t china do anything taiwan can do, just cheaper? this is a similar problem for the US. how can the US compete against china except to develop new high tech industries before the chinese do, industries that for some reason would better thrive on american soil?
November 13th, 2007 at 7:21 pm
PS when the presidential candidates talk about new jobs for americans- i usually just hear about alternative energy and stem cell research, but besides service jobs related to installing and maintenance of alternative energy devices, china can so those things cheaper and with more government support, right?
November 13th, 2007 at 10:16 pm
V, the US and Taiwan have some real advantages over China. A higher trust society, a more robust legal system, better protection for investors, and less corruption, are a few examples. In some industries, such as software development, these advantages compensate for China’s lower labor costs; in others, such as textile manufacturing, they don’t.
The whole concept of “job loss” is a little difficult for me to swallow. Until people have limited wants, I don’t think the number of potential jobs will be limited, either. Talking about “job loss” is a good way of whipping up nationalist sentiment and getting elected, though.
There are some pains when industries move, and I’m sure that those recently out of work would love to turn the clock back. Still, few Americans would want back the old manufacturing jobs we lost to Japan in the 60’s. Similarly, the Japanese “lost” those textile manufacturing jobs to Koreans and Taiwanese in the 80’s and I wouldn’t be at all surprised to see the Chinese losing them to various African countries in another 20 years. Retraining for higher-value jobs is a much better solution than protectionism.
November 14th, 2007 at 3:12 am
China’s economy is going to pass the United States on an exchange rate basis in 2018 plus or minus three years. (I think the transition will happen sooner than my analysis of 6 months ago).
China’s currency is likely to appreciate 20-40% (the higher number if there is a substantial one off re-adjustment) over the next 2-3 years and its growth rate will still be at 9-12% per year. China will then be well ahead of Japan as the number two economy in the world on an exchange rate basis.
Taiwan should look at cutting the best economic deal it can by getting a favored position within the Chinese economic rocket. It is not about politics.
In terms of proportional GDP, Taiwan is less than Canada versus the USA and less than Hong Kong was back in 1997 versus China’s economy.
The Asia region countries are increasingly economic satellites of China. Asean, S Korea etc… Taiwan has the good fortune of being in the position to cut a special deal. The sooner this is done then the better the deal will be. Think NAFTA or EU style deals.
McKinsey has projections of China’s development of a large middle class As this happens China’s consumption will further skyrocket and it will solidify its position as the dominant global growth engine.
November 14th, 2007 at 9:37 am
I don’t know what Eurostat is, but they also show 4.6% for 2006
CIA Factbook says 2006 real GDP growth rate is 4.7% est.
Aside from your calculations of IMF data, can you offer a reference for the claim:
“Taiwan’s real GDP has grown by less than 1.2% per year since 2000″?
November 14th, 2007 at 11:25 am
Karl, every single one of these sources you’re showing me is using single year estimates based on local currency. The entire point of this discussion about currency rates is that that might not be a good idea. I have no dispute with a figure of 4.6% or 4.7% for currency-adjusted 2006 growth.
Keep in mind that the Taiwanese economy was actually smaller in 2004 than in 2000. None of the links you’ve put up have included those years. Obviously, removing losing years will have a big effect on long-term annualized growth.
The IMF data I formatted in this post is very similar to the GDP per capita (US$) data from that Australian report you shared in comment #15. Dividing their 2006 figure by their 2005 figure gives
15,936 / 15,599 = 1.0216
That’s 2.2% growth for the year, which is relatively close to the 1.8% growth given by the IMF figures. I doubt you can find any errors in my calculations of the six year growth rates for Taiwan or Korea, but if you do, I’ll happily to own up to them and correct them.
Similarly, if you get me data from a credible non-IMF source that goes back to the year 2000, I’d be glad to calculate long term
realnominal growth rates from that data and add the results to my other article.Update by Admin: I’ll need more data in order to calculate real rates
November 14th, 2007 at 12:12 pm
Actually, there has been a lot of repudiation for Chen’s policy of cutting Taiwan off from the China trade from the DPP presidential candidate, Frank Hsieh.
According to Tuesday’s United Daily News, he actually challenged the Chen policy pretty directly. “How can you say you love Taiwan when you are stripping us of our competitiveness?” he said on Monday.
“Intel(?) have gone to China already, and we’re still here congratulating ourselves over how well we’re keeping our tech secrets from China,” he said, “saying that we’ll only open up third or fourth line products to China because we don’t want the Chinese to know about the rest.”
(Warning: very loose translations.)
So when Chen leaves, no matter who comes next, Ma or Hsieh, the insanity will be over.
November 14th, 2007 at 6:47 pm
mark, have you read age of turbulence by alan greenspan?
November 14th, 2007 at 7:58 pm
No, I haven’t, but I see that it’s up on Scribd!
Does it talk much about Asian currencies?
November 14th, 2007 at 9:06 pm
Here’s the article Battle Panda mentioned:
謝長廷嗆扁：再管下去 台灣一無所有
Then from today:
再反嗆扁 謝長廷：罵人者衰衰去
November 15th, 2007 at 6:08 am
just my luck that the Australian dollar is at historic strength against the US dollar when I’m traveling here for three weeks. I’m really taking a bath on this one.
November 15th, 2007 at 9:03 am
“Similarly, if you get me data from a credible non-IMF source that goes back to the year 2000″
Can you give me an idea of sources that you will consider non-credible, just so we’re on the same page?
November 15th, 2007 at 11:18 am
As long as it’s from a source that looks at multiple countries and has no specific political affiliation within Taiwan, it should be fine. Actually, the sources you’ve already used would be fine if you can find data in USD or International Dollars back to 2000. The Economist intelligence unit and the Australian government are both credible.
November 15th, 2007 at 1:38 pm
Let me clarify one more point. Points. Or maybe pint.
When we use the NT$ exchange rate, which we admit is an artifact of political decisions and not of economic forces, to calculate GDP growth, we get a lower number than GDP growth calculated by purchasing power. We take the lower number and declare the last six years an economic disaster.
Wouldn’t it be easier to just disagree with the government’s policy of not allowing the NT$ to appreciate?
As a favor, could you do one of those neat % against U.S. dollar graphs charting the NT$ with the Thai Baht, the Philippine Peso, and the Indonesian Rupiah? If Taiwan is a developing Asian economy as you assert, then it would be nice to compare the currency against other developing Asian economies. You could throw in the Sing $ while yer at it.
P.S.: Your blog is the first Google hit for Taiwan GDP 2000 2006. Heh.
November 15th, 2007 at 4:28 pm
[...] The Fall of the Taiwan Dollar Doubting to Shuo analyzes the poor performance of the Taiwan dollar over the last several year. The U.S. peg strikes again… (tags: Economy) [...]
November 15th, 2007 at 8:29 pm
You must realize it isn’t as simple as that. Economic forces have an influence. If they didn’t, then governments could arbitrarily create wealth without limit via currency manipulation. FYI, I do disagree with the government’s weak TWD policy.
Sure, I can do that. I don’t really consider those to be major world currencies, but why not? I haven’t looked into the long term growth trends of Indonesia or Thailand, but I’d bet that they have been growing at a faster clip than Taiwan has since they’re less developed, whereas Singapore might have put up relatively weak growth. Give me a week or two. I’ll pull the data on them and write it up with both real GDP and currency data.
November 16th, 2007 at 6:03 pm
This is crazy. I think you made their brains explode by looking at more than a single year. Consumers of those economic reports are just as short-sighted as the idiots who focus on hourly stock updates. Trying to look at the bigger picture is more than most media (or bloggers) can handle.
November 16th, 2007 at 6:34 pm
This entry gives the gross domestic product (GDP) or value of all final goods and services produced within a nation in a given year. A nation’s GDP at offical exchange rates (OER) is the home-currency-denominated annual GDP figure divided by the bilateral average US exchange rate with that country in that year. The measure is simple to compute and gives a precise measure of the value of output. Many economists prefer this measure when gauging the economic power an economy maintains vis-à-vis its neighbors, judging that an exchange rate captures the purchasing power a nation enjoys in the international marketplace. Official exchange rates, however, can be artifically fixed and/or subject to manipulation - resulting in claims of the country having an under- or over-valued currency - and are not necessarily the equivalent of a market-determined exchange rate. Moreover, even if the official exchange rate is market-determined, market exchange rates are frequently established by a relatively small set of goods and services (the ones the country trades) and may not capture the value of the larger set of goods the country produces. Furthermore, OER-converted GDP is not well suited to comparing domestic GDP over time, since appreciation/depreciation from one year to the next will make the OER GDP value rise/fall regardless of whether home-currency-denominated GDP changed.
November 16th, 2007 at 8:38 pm
Karl, I have to say I’m at a bit of a loss. You said we were in agreement about GDP statistics in comment #10, but that the currency data was “cherry picked”. I put up over ten years of continuous currency data, and then you started arguing about the 2000-2006 GDP data and repeatedly submitting 2006 single-year currency adjusted estimates (which are obviously going to be different than 6-year data sets). I offered to spend my own time to incorporate 2000-2006 GDP data you send me from other sources (since you seemed to be unsatisfied with the IMF’s figures).
Instead of doing any of this, or making any sort of argument to support your wild claim that the TWD hasn’t fallen against the KRW, you’ve just copied the CIA’s entire explanation of what nominal GDP is, with no commentary of your own. We all know the difference between nominal and PPP GDP. What does this add to the discussion? It looks like spam.
November 17th, 2007 at 7:23 pm
It seems that as we get closer to elections anyone saying that the economy is anything but rosy is criticized in some circles as a politically motivated attack on the DPP.
# 2 Mark Says:
November 12th, 2007 at 3:06 am
Yes, it does.
LOL. Not much point in responding here. Thanks, Karl.
Michael
November 19th, 2007 at 3:06 am
Michael, you could always say something like “Aha! So, that’s what you were talking about!”
November 19th, 2007 at 3:19 am
Everyone, I appreciate everyone’s long and thought-out comments. Please try to stay on topic, though. Any further discussion about about the overall condition of the Taiwanese economy or the situation of the average worker should be made to one of these posts:
Economy: Taiwan vs. Korea 2000-2006
Salary Stagnation: The reason Taiwan’s middle class suffers