Taiwan's Central Bank said it will rein in limits on the use of exchange-rate derivatives

Taiwan's Central Bank said it would step up curbs on the use of foreign exchange derivatives to combat currency speculation by foreigners.

Banks in the non-deliverable holdings and options in the Taiwan dollar will be limited to 20 percent of their positions in the local currency, with immediate effect, the central bank said in an emailed statement yesterday afternoon . The ceiling was previously one third. Available below are exempt from the restrictions as they are used by local companies to protect earnings from exchange rate fluctuations, he said.

The change aims to "maintain order in the foreign exchange market to prevent speculative foreign capital to intervene in the market," said the statement.

Developing economies have intensified efforts to curb the volatility of its currency as close to zero interest rates in the U.S. and Japan to stimulate demand for emerging market bonds and higher yielding stocks. Taiwan announced on November 9, limits on foreign investment in debt, only to allow offshore funds to be up 30 percent of their portfolios invested in all types of government bonds and money market products.

"The new regulations will not impact too much on the currency," said Henry Lin, a currency trader based in Taipei in Taiwan Shin Kong Commercial Bank. "The market was already expecting the new regulations and it took quite well."

Capital controls

Island dollar has appreciated 3.3 percent against the dollar in the last month, the best performance in Asia, and today touched a 13-year high of NT $ 29,450.

The U.S. currency remains under pressure to weaken, the Economy Minister Shih Yen-Shiang, said today in Taipei. "This means continued pressure for the Taiwan dollar to rise," he said.

The island's gross domestic product will expand by more than 10 percent this year and Taiwan is facing the risk of inflation in 2011, also said Shih.

Emerging economies have been the introduction of capital control measures in recent months to cool the foreign investment and purchases of bonds the Federal Reserve more funds available for investment in higher yielding assets.

South Korea aims to apply a tax on bank lending exchange and strengthen punishment for inadequate reporting of currency transactions, according to a joint statement from the government and central bank on 19 December . A cap can also be placed in banks' holdings of foreign currency derivatives after a review in January, said Finance Minister Yim Jong Yong.

Brazil Tax

Brazil tripled a tax on local purchases of fixed assets by foreign investors in October, while the Thai government took a 15 percent exemption of income tax for foreigners from local bonds.

Taiwan's Central Bank has intervened in the currency market almost every day for eight months to see recognition that can hurt exports, according to currency traders who declined to be identified because of the sensitivity of the matter.

"I do not think the new rules that actually affect the Taiwan dollar," said Tan Pin Ru, a strategist at Royal Bank of Scotland Group in Singapore. "Investors can still make NDF operations at sea without restrictions. The fact that the central bank decided to do this instead of stopping in the domestic market shows that the authority does not dare to go so hard."