TAIPEI • As governments around the world struggle to shelter their economies from the effects of the coronavirus pandemic, Taiwan is seeing the opposite.
Its economy is projected to grow 1 per cent this year, according to a Bloomberg survey of economist estimates, second only to China's 2 per cent among major economies.
Taiwan has benefited from companies shifting some of their manufacturing back home from China amid growing tensions between Beijing and Washington, as well as increased demand for its products from the United States.
While such good news would normally increase the allure of the local currency - and thereby reduce the attractiveness of Taiwan's exports overseas - the island's central bank has taken aggressive action to limit gains.
The result is that the Taiwan currency has been the least volatile among 31 major exchange rates against the greenback in the past three months, after the pegged Hong Kong dollar.
Although Taiwan has regularly taken steps to curb strength in its currency before, which the central bank governor refers to as "smoothing", such intervention can draw the attention of the US Treasury.
At its most extreme, being labelled a manipulator can presage sanctions. The recent tensions between Washington and Beijing may also be benefiting Taiwan.
"With Taiwan, the safe bet is always that intervention - or smoothing - will continue," said Mr Brad Setser, an economist with the Council on Foreign Relations (CFR).
"The only factor that in my view might induce Taiwan to change is external pressure, and the US Treasury has been quiet on this topic since January."
The central bank did not immediately respond to calls for comment.
In January, the US Treasury noted in a report to Congress that Taiwan was "close to triggering key thresholds" that would see it being labelled a currency manipulator.
Taiwan is "the only major economy in Asia that does not publish data on the full details of its international reserves consistent with International Monetary Fund (IMF) standards".
It is often the case with US Treasury reports and the two Acts that guide currency-manipulator designation - one passed in 1988, the other in 2015 - that politics trumps facts, said Mr Stephen Chiu, a strategist for Bloomberg Intelligence.
He noted the Trump administration's use of the 2015 Act last year to declare China guilty was "pretty discretionary", while adding that Taiwan may be in violation of the three criteria of the 1988 Act.
The US Treasury is expected to release its next report next month.
There are signs the central bank may be loosening its grip on the currency. After the Taiwan dollar failed to move more than 0.1 per cent on a daily closing basis for almost six weeks, it climbed 0.4 per cent on Tuesday.
The currency ended 0.25 per cent higher at its strongest closing level since April 2018 on Wednesday.
The moves are modest considering pressure on the currency to gain has only been increasing.
Taiwan is enjoying an export boom, beating even the most optimistic forecasts last month.
It shipped a record US$31.2 billion (S$42.4 billion) in goods, a jump of 8.3 per cent year on year.
In the first seven months of this year, Taiwan became the US' ninth-largest trading partner, exporting US$33 billion in goods to its guarantor of security in the face of China's threat, while running a 15.6 per cent trade surplus.
It is unclear just how Taiwan's central bank smooths its currency, but it is generally suspected that it constantly buys greenback in order to prevent strengthening.
As Mr Setser argued last October in a blog post for CFR, the bank could be hiding the amount of the US dollars it buys by lending to insurers via swap trading, thus keeping the currency off its balance sheet.
The central bank can also send verbal messages.
Last week, it asked banks to limit the amount of US dollars that could be sold in a single trade.
The result has been a remarkably flat Taiwan currency.
In the past three months, it has gained 1.2 per cent against the greenback, trailing 24 major currencies including the yuan, won and yen, in the same period when the Bloomberg Dollar Spot Index has slumped more than 4 per cent.
A scheduled interest-rate decision by Taiwan's central bank yesterday is unlikely to change the picture for the currency, with analysts polled by Bloomberg unanimous that the benchmark rate will be kept unchanged - at 1.125 per cent.
It is not just exporters the government needs to consider.
Taiwan's insurers, which sit on NT$30.2 trillion (S$1.4 trillion) in assets, have sizeable investments overseas, especially in US corporate bonds.
A rapidly strengthening currency would result in a valuation loss as well as force them to hedge their exposure abroad, according to Mr Setser.
Pressure on the central bank to restrain the currency is likely to grow next quarter because of iPhone orders and a possible shift in orders to Taiwan from China amid the US' ban on Huawei Technologies sales, according to Mr Chiu.
At the same time, Washington is unlikely to designate Taipei a currency manipulator.
"As long as Taiwan is a political ally of the US against China, it won't be named," he added.