What Is the Appreciation and Depreciation of the New Taiwan Dollar

The New Taiwan Dollar is the legal currency of Taiwan, and its value will fluctuate with the supply and demand relationship in the foreign exchange market. When the value of the New Taiwan Dollar becomes higher, we call it appreciation; when the value of the New Taiwan Dollar becomes lower, we call it depreciation.

So, how does the appreciation and depreciation of the New Taiwan Dollar occur? We can use US dollars to measure the value of the Taiwan dollar, because the US dollar is the most circulated currency in the world. For example, when 1 U.S. dollar is exchanged for 25 NT dollars and becomes 30 NT dollars, it means that you only need to spend 25 NT dollars to exchange for 1 U.S. dollar, but now you need to spend 30 yuan to exchange for 1 U.S. dollar. This is the New Taiwan dollar. Depreciation; on the contrary, when 1 U.S. dollar is exchanged for 30 NT dollars and becomes 25 NT dollars, it means that it originally took 30 NT dollars to exchange for 1 U.S. dollar, but now it only costs 25 yuan to exchange for 1 U.S. dollar. This is The New Taiwan dollar appreciates.

When Will the New Taiwan Dollar Appreciate and Depreciate?

The value of the New Taiwan Dollar will change with the supply and demand relationship in the foreign exchange market, and there are many factors that affect the supply and demand relationship, such as:

1. International economic situation: When the global economic climate is good, Taiwan's exports will increase, foreign exchange earnings will increase, demand for the New Taiwan Dollar will increase, and the New Taiwan Dollar will appreciate; conversely, when the global economic climate is poor, Taiwan's exports will decrease, Foreign exchange earnings will decrease, demand for the New Taiwan Dollar will decrease, and the New Taiwan Dollar will depreciate.

2. Domestic economic situation: When Taiwan's economic growth rate is high, domestic investment and consumption will increase, international funds will flow into Taiwan, the supply of the New Taiwan Dollar will decrease, and the New Taiwan Dollar will appreciate; conversely, when Taiwan's economic growth rate is low , domestic investment and consumption will decrease, international funds will flow out of Taiwan, the supply of New Taiwan Dollar will increase, and the New Taiwan Dollar will depreciate.

3. International political situation: When there are unstable factors such as wars, conflicts, and terrorist attacks in the world, investors will seek safe assets, such as U.S. dollars, gold, etc. The demand for the New Taiwan Dollar will decrease and the New Taiwan Dollar will depreciate; conversely, when the international When there are stable factors such as peace, cooperation, and development, investors will seek high-risk, high-return assets, such as emerging market currencies. The demand for the New Taiwan Dollar will increase and the New Taiwan Dollar will appreciate.

4. Central bank policy: The central bank can affect the New Taiwan dollar exchange rate by adjusting interest rates, intervening in the foreign exchange market, and controlling foreign exchange. Generally speaking, when the central bank raises interest rates, the cost of domestic funds rises, the attraction of international funds increases, the demand for the New Taiwan Dollar increases, and the value of the New Taiwan Dollar will appreciate; conversely, when the central bank lowers interest rates, the cost of domestic funds decreases, and the attractiveness of international funds increases. If the demand for the New Taiwan Dollar decreases, the New Taiwan Dollar will depreciate. In addition, the central bank can also directly buy and sell foreign exchange in the foreign exchange market to influence the exchange rate. Generally speaking, when the central bank buys U.S. dollars and sells New Taiwan dollars, the supply of U.S. dollars decreases and the demand increases. The supply of New Taiwan dollars increases and the demand decreases. The U.S. dollar will appreciate and the New Taiwan dollar will depreciate; conversely, when the central bank sells U.S. dollars When buying New Taiwan Dollars, the supply of U.S. dollars increases and demand decreases. If the supply of New Taiwan Dollars decreases and demand increases, the U.S. dollar will depreciate and the New Taiwan Dollars will appreciate. The central bank can also restrict the inflow or outflow of funds through foreign exchange controls to affect the exchange rate. Generally speaking, when the central bank implements capital controls, the liquidity of international funds will decrease, the supply and demand relationship of the New Taiwan Dollar will change, and the New Taiwan Dollar exchange rate will be affected.

Impact of the Appreciation and Depreciation of the New Taiwan Dollar

So, what are the impacts of the appreciation and depreciation of the New Taiwan Dollar? Generally speaking, for Taiwan's export-oriented economy, the depreciation of the New Taiwan Dollar is beneficial to export competitiveness, while the appreciation of the New Taiwan Dollar is beneficial to import costs. Specifically, we can analyze it from the following three aspects:

• For exporters, the depreciation of the Taiwan dollar means that they can sell products at lower prices, thereby increasing sales and profits; while the appreciation of the Taiwan dollar means that they must sell products at higher prices, thus reducing sales. volume and profit.

• For importers, the depreciation of the New Taiwan Dollar means that they must buy products at higher prices, thereby increasing costs and compressing profits; while the appreciation of the New Taiwan Dollar means that they can buy products at lower prices, thereby reducing costs. and improve profits.

• For consumers, the depreciation of the Taiwan dollar means that they must use more money to purchase foreign goods or services, thereby reducing their purchasing power and willingness to consume; while the appreciation of the Taiwan dollar means that they can use less money to purchase foreign goods or services. , thereby increasing purchasing power and willingness to consume.