When central banks act this way, it's usually a case of damage control and trying to cook something up to appease the media/public. I'm not saying that is what is happening with Taiwan but there are cases around the world where these things do happen.
In just three sessions, we already saw the local currency depreciate by over 7% by the end of day close. And when we got to office early the next morning, the offshore market i.e. non-deliverable forwards were indicating a gap open with the currency set to fall by another 13% overnight.
For a good six hours, we had zero trades in the local market and zero transactions with clients. All incoming calls were just deflected by a case of "system issue". Clients were of course mad but they sort of understood - at least the bigger corporates - when every single bank was refusing to offer a quote, even an indicative one. We weren't even allowed to say anything about where the offshore market was trading.
I remember that lunch time, I stepped out and called my parents to just change whatever you can out of the local currency. It felt like that moment in the movie The Big Short.
Then, the offshore market i.e. NDFs would not be recognised anymore and starting from the next day, all incoming foreign funds into the country will be forcefully converted into the local currency at a 75% notional amount minimum. This continued for quite a number of years.
But even after nine years now, I always believe that the damage has already been done. If not through one way, then at least surely another. At one point, the local currency was even threatened to be kicked out of the MSCI basket. There was a lame workaround to circumvent that in the end though, something to do with extending trading hours.
So yeah, that's my story for today.
This article was written by Justin Low at www.forexlive.com. Read More Details
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