Treasury & FX in Taiwan

Commentary

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In many ways, this was a reassuring call: there was a lively discussion, but it was about the finer points of how to manage intercompany netting via an in-house bank. No-one was encountering any serious operational issues.

In summary, cross-border cash sweeping and cash transfers are easy, as long as they do not involve the local currency, the New Taiwanese Dollar (NTD). So, if you have a business which has receipts and payments in US dollars or euros, there are no issues. If the NTD is involved, transactions are still easy, up to an annual limit of USD 50 million. Beyond that, approval is required from the central bank. This also affects intercompany loans.

On the other hand, once the NTD is involved and approvals are required, the documentary requirements can become onerous. This did not affect one participant, who sweeps amounts with a low annual monetary value. However, it is complicating the life of another participant, whose software does not have enough fields to provide all the data required. This means that payments still have to be triggered manually. Several participants are making payments via in-house banks: this does not seem to cause any issues.

Onshore hedging is possible – but, again, life can become complicated once the NTD is involved. Most participants tend to default to the offshore market, which is quite liquid and does not cause any issues – except for the inevitable internal measurement problems. One participant made a sizeable acquisition in Taiwan, and was obliged to execute the FX conversion over several days to avoid causing disruption in the onshore FX market.

Bottom line: Taiwan works, though there are some challenges related to residual exchange controls. But these only affect the more advanced treasury management activities, such as automated cross border cash sweeping and the operation of in-house banks – and even then, these are usually possible.