In recent months, the New Taiwan Dollar (TWD) has surged to its highest level in over three years against the U.S. Dollar (USD). While a stronger currency sounds like a vote of confidence, Taiwan’s case highlights how this can create serious economic side effects — especially when the country holds nearly $1 trillion in USD-denominated assets.

The Basics: What a Stronger Currency Means

If the USD drops from 32 to 28 TWD per dollar, Taiwan’s $1 trillion in U.S. securities loses value in local currency terms:

  • At 32 TWD/USD → $1T = TWD 32T
  • At 28 TWD/USD → $1T = TWD 28T

That’s a TWD 4 trillion paper loss, without touching a single asset.

Why This Hurts Taiwan

  • Massive reserves at risk: The central bank and insurers hold huge amounts in USD. Those are now worth less.
  • Export challenges: A stronger TWD makes Taiwan’s tech exports more expensive abroad.
  • Investor panic: As USD assets lose value in TWD, investors rush to reduce exposure — fueling more volatility.

Potential Shockwaves in Global Markets

If Taiwan (or similar holders like Japan) begins offloading USD assets, it could:

  • Trigger more USD selling
  • Drive further USD depreciation
  • Raise U.S. bond yields if fewer foreign buyers participate

Are There Any Upsides?

Yes, there are a few silver linings for Taiwan:

  • Cheaper imports (oil, raw materials, food)
  • Inflation control becomes easier
  • Stronger overseas buying power for consumers and students

But those benefits may not outweigh the fiscal pressure and export risks.

Final Thought

A strong currency might look like a win — but for economies like Taiwan with deep ties to the USD, it’s a balancing act. If the TWD strengthens too quickly, Taiwan faces a modern version of a currency crisis: not from collapse, but from success.

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