Taiwan’s central bank, unlike most central banks, doesn’t disclose its position in FX derivatives. It really should. There is good reason to think its undisclosed exposure is quite substantial.    

Council On Foreign Relations
Date: October 3, 2019
By: Brad W. Setser and Guest Blogger for Brad Setser

This is the first post in a series[1] on Taiwan's life insurers and their private & sovereign FX hedging

counterparties. It’s the product of a collaboration with S.T.W[2], a market participant and friend of the blog. Printable versions of entries in this series will be available in pdf format on his site (Concentrated Ambiguity).

Introduction

For the better part of the last 20 years, analyzing the ups and downs of FX interventions and the concomitant rise of global FX reserves has been an integral part of understanding FX and sovereign bond markets. Central banks from countries as diverse as Japan, China, Saudi Arabia, Russia, Switzerland, Hong Kong, India, and South Korea have each assumed FX exposures north of USD 400bn at the beginning of 2019.

What unites these, and practically every other here unmentioned country, is that the most comprehensive information about their activities in currency markets can be found in a standardized form created by the IMF, the ‘Data Template on International Reserves and Foreign Currency Liquidity’ (IRFCL). The template was initially developed in 1999 and is a key component of the Special Dissemination Standard (SDDS), to which IMF members subscribe in order to "provide[s] a standard for good practices in the dissemination of economic and financial data”.[3] As of today, 95% of all IMF member countries (including all G20 members), subscribe to the SDDS and accept the responsibility to produce an IRFCL.

The value of the reserve template lies in the provision of detailed 'Foreign currency resources' and 'Foreign currency drains', which includes positions in FX derivative markets, pledging or lending of FX reserves, as well as other contingent exposures—all factors which are not readily revealed by the headline FX reserve series alone. Because of the disclosure of these details, it is usually possible to understand even complicated FX maneuvers conducted by central banks.   [FULL  STORY]