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Taiwan's Undervalued Currency Fuels Massive Trade Surplus and Economic Risks
13 Nov
Summary
- Taiwan has the world's most undervalued currency, 55% below fair value
- Taiwan's current account surplus has swelled to 16% of GDP, one of the highest globally
- Taiwan's central bank has aggressively suppressed the currency to boost exports
As of November 13, 2025, Taiwan finds itself in a precarious economic position. Despite being one of the richest countries in the world, with an output per person higher than Australia, Germany, or Japan, Taiwan's currency is the world's most undervalued, according to The Economist's Big Mac index.
Taiwan's exports, particularly of computer chips and servers, have surged by 300% over the past five years, leading to record trade surpluses. In October 2025, Taiwan's monthly goods-trade surplus reached a staggering $22.6 billion, or 31% of GDP on an annualized basis. The country's current account surplus has also swelled to 16% of GDP so far this year, up from 10% in the 2010s.
However, this export-driven success has come at a cost. Taiwan's central bank has aggressively suppressed the value of the local currency, the Taiwan dollar, in an effort to keep exports competitive. This has led to significant economic distortions, including a massive buildup of foreign currency reserves, soaring property prices, and stagnant wages for Taiwanese workers despite a doubling in labor productivity since 1998.
The central bank's policies have also created risks in the insurance industry, as Taiwanese insurers have accumulated $960 billion in liabilities backed by $700 billion in higher-yielding foreign assets, primarily U.S. Treasuries. Economists estimate that the unhedged currency risk for the insurers is around $200 billion, or a quarter of Taiwan's GDP, posing a potential threat to the financial system.
