Middle East Conflict: Central Bank Sells Foreign Exchange to Stabilize Market, Foreign Exchange Reserves Plummet by US$8.6 Billion at End of March
Due to escalating tensions in the Middle East and a strengthening US dollar, Taiwan's central bank intervened in the market by selling foreign exchange to stabilize it, resulting in a US$8.6 billion drop in foreign exchange reserves to US$596.886 billion at the end of March. Massive selling of Taiwanese stocks and capital outflow by foreign investors caused a significant depreciation of the New Taiwan Dollar. The central bank noted this as the largest fluctuation since the 2011 European debt crisis.
📋 Article Processing Timeline
- 📰 Published: April 7, 2026 at 20:19
- 🔍 Collected: April 7, 2026 at 21:00 (41 min after Published)
- 🤖 AI Analyzed: April 15, 2026 at 20:23 (191h 23m after Collected)
Central Bank statistics show that foreign exchange reserves at the end of March were US$596.886 billion, ending three consecutive months of growth, with a sharp decrease of US$8.601 billion, falling below the US$600 billion mark. As of the end of March 2026, foreign investors' holdings of domestic stocks and bonds, calculated at market value on that day, along with their New Taiwan Dollar deposit balances, totaled US$1.2593 trillion, approximately 211% of foreign exchange reserves.
Cai Jiongmin, Director-General of the Central Bank's Department of Foreign Exchange, explained that March was not a major month for interest income, so investment returns were not substantial. Additionally, the ongoing Middle East conflict fueled risk aversion and strengthened the US dollar, causing most other currencies to depreciate, making exchange rate factors a negative contributor. In March, due to foreign investors' massive selling of Taiwanese stocks and capital outflow, the foreign exchange market experienced severe fluctuations, and the central bank's intervention to sell foreign exchange and curb depreciation was also a significant reason.
Since March, the Middle East conflict has continued to escalate, and hot money has continued to flee, dragging down both stocks and exchange rates. The New Taiwan Dollar depreciated sharply by NT$0.729 or 2.28% in March, turning negative for the month and marking the largest single-month depreciation in nearly three and a half years since October 2022.
Cai Jiongmin stated that due to the impact of the conflict, foreign investors had large inflows and outflows in March, stock market volatility was severe, and the foreign exchange market also experienced supply-demand imbalances. The central bank indeed intervened to stabilize the foreign exchange market.
According to statistics, foreign investors sold NT$968.2 billion in Taiwanese stocks in March. Cai Jiongmin pointed out that after combining earnings and principal, foreign investors' net outflow in March reached US$24 billion, setting a new record, which exacerbated the impact on the foreign exchange market. After all, Taiwanese stocks were mostly at 10,000 to 20,000 points before, but now they have exceeded 30,000 points, "the market value is too large."
The inflow and outflow of foreign capital caused a temporary imbalance in the supply and demand of the New Taiwan Dollar exchange market, so the central bank used foreign exchange reserves to intervene, resulting in a single-month decrease of US$8.601 billion. Cai Jiongmin stated that even during 2022-2024, when the US Federal Reserve continuously raised interest rates and interest rates were at a high level, and the New Taiwan Dollar depreciated, the central bank's intervention to stabilize the exchange rate did not cause such a large change in foreign exchange reserves in a single month. The previous significant change was during the European debt crisis in 2011.
Cai Jiongmin stated that there are two similarities between the European debt crisis and the current situation: both involved exchange rate and central bank intervention factors, leading to a larger reduction in foreign exchange reserves. Observing the foreign exchange reserves of various countries announced for March, Japan, South Korea, and India also saw declines.
Although foreign capital outflow caused depreciation pressure on the New Taiwan Dollar, Cai Jiongmin stated that Taiwan's current account surplus continues to expand, and exporters are "full of US dollars," both of which can provide support for the New Taiwan Dollar exchange rate.
Cai Jiongmin analyzed that the most critical factor affecting the financial market at present is still the development of the US-Iran conflict and its impact on oil prices. Now, as risk aversion rises and the US dollar strengthens, most currencies are depreciating. In addition, the market is concerned about the economic impact of the conflict and ongoing geopolitical risks, continuously adjusting expectations for the Federal Reserve's interest rate cuts, with some even expecting a 70-80% chance that the Federal Reserve will not cut interest rates before the end of the year.
Cai Jiongmin added that the Federal Reserve's March dot plot information showed that interest rate cuts would be maintained this year, but market expectations are constantly being adjusted. With the new chairman taking office in May, investors are still observing his stance. (Editor: Yang Kaixiang) 1150407
Cai Jiongmin, Director-General of the Central Bank's Department of Foreign Exchange, explained that March was not a major month for interest income, so investment returns were not substantial. Additionally, the ongoing Middle East conflict fueled risk aversion and strengthened the US dollar, causing most other currencies to depreciate, making exchange rate factors a negative contributor. In March, due to foreign investors' massive selling of Taiwanese stocks and capital outflow, the foreign exchange market experienced severe fluctuations, and the central bank's intervention to sell foreign exchange and curb depreciation was also a significant reason.
Since March, the Middle East conflict has continued to escalate, and hot money has continued to flee, dragging down both stocks and exchange rates. The New Taiwan Dollar depreciated sharply by NT$0.729 or 2.28% in March, turning negative for the month and marking the largest single-month depreciation in nearly three and a half years since October 2022.
Cai Jiongmin stated that due to the impact of the conflict, foreign investors had large inflows and outflows in March, stock market volatility was severe, and the foreign exchange market also experienced supply-demand imbalances. The central bank indeed intervened to stabilize the foreign exchange market.
According to statistics, foreign investors sold NT$968.2 billion in Taiwanese stocks in March. Cai Jiongmin pointed out that after combining earnings and principal, foreign investors' net outflow in March reached US$24 billion, setting a new record, which exacerbated the impact on the foreign exchange market. After all, Taiwanese stocks were mostly at 10,000 to 20,000 points before, but now they have exceeded 30,000 points, "the market value is too large."
The inflow and outflow of foreign capital caused a temporary imbalance in the supply and demand of the New Taiwan Dollar exchange market, so the central bank used foreign exchange reserves to intervene, resulting in a single-month decrease of US$8.601 billion. Cai Jiongmin stated that even during 2022-2024, when the US Federal Reserve continuously raised interest rates and interest rates were at a high level, and the New Taiwan Dollar depreciated, the central bank's intervention to stabilize the exchange rate did not cause such a large change in foreign exchange reserves in a single month. The previous significant change was during the European debt crisis in 2011.
Cai Jiongmin stated that there are two similarities between the European debt crisis and the current situation: both involved exchange rate and central bank intervention factors, leading to a larger reduction in foreign exchange reserves. Observing the foreign exchange reserves of various countries announced for March, Japan, South Korea, and India also saw declines.
Although foreign capital outflow caused depreciation pressure on the New Taiwan Dollar, Cai Jiongmin stated that Taiwan's current account surplus continues to expand, and exporters are "full of US dollars," both of which can provide support for the New Taiwan Dollar exchange rate.
Cai Jiongmin analyzed that the most critical factor affecting the financial market at present is still the development of the US-Iran conflict and its impact on oil prices. Now, as risk aversion rises and the US dollar strengthens, most currencies are depreciating. In addition, the market is concerned about the economic impact of the conflict and ongoing geopolitical risks, continuously adjusting expectations for the Federal Reserve's interest rate cuts, with some even expecting a 70-80% chance that the Federal Reserve will not cut interest rates before the end of the year.
Cai Jiongmin added that the Federal Reserve's March dot plot information showed that interest rate cuts would be maintained this year, but market expectations are constantly being adjusted. With the new chairman taking office in May, investors are still observing his stance. (Editor: Yang Kaixiang) 1150407
FAQ
What was Taiwan's foreign exchange reserve at the end of March?
Taiwan's foreign exchange reserve at the end of March was US$596.886 billion.
What were the main reasons for the decrease in foreign exchange reserves?
The main reasons were the escalating Middle East conflict, a stronger US dollar, massive selling of Taiwanese stocks and capital outflow by foreign investors, and the central bank's intervention to stabilize the market.