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Taiwan flags benefits of capital controls

TAIPEI, Taiwan -- Taiwan's central bank highlighted the benefits of capital controls in a statement sent to media Tuesday, after the local currency reached a 16-month high versus the greenback.

The release, similar to a document the bank sent reporters in October, included comments from organizations including the United Nations and the International Monetary Fund concerning the risks associated with rapid capital movement. The currency has risen 0.8 percent so far this year versus the greenback as overseas investors pumped US$1.8 billion into local stocks, adding to net purchases of US$15.6 billion in 2009.

“It's a warning against speculating on the Taiwan dollar,” said Lucas Lee, an economist at Mega Securities Co. in Taipei. “The trend for the Taiwan dollar can't be changed, but it must not rise too much or too rapidly.”

The Taiwan currency closed at NT$31.79 against the U.S. currency in Taipei Tuesday, little changed from NT$31.78 Monday, according to Taipei Forex Inc. It earlier touched NT$31.715, the strongest level since September 2008.

In Tuesday's release, the Central Bank of the Republic of China (Taiwan) repeated a comment from Joseph Stiglitz, the Nobel Prize-winning economist, that emerging-market countries should consider controlling inflows of capital. It also cited remarks by Ajay Chhibber, United Nations Development Program regional director for Asia and Pacific, that Asian countries can consider following Brazil in taxing inflows.

The central bank said Jan. 5 that it had set a one-week deadline for funds from overseas to be used for their stated purpose or repatriated. The bank the previous day announced that foreign investors with “excessive” holdings of the island's currency had been reported to the appropriate regulator for investigation. The government banned them from placing funds in time deposits in November.

Money is pouring into Taiwan as strengthening trade and investment ties with China help the island recover from a recession. Exports jumped 46.9 percent from a year earlier, the most in more than 14 years in December, the government reported last week. The shipments are equivalent to about two-thirds of gross domestic product.

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