Morris Chang Wants Consistent FX Policy

Morris Chang is asking the Taiwan Government to develop a consistent fx policy as the strengthening of the NTD against the USD is leading to decreased profits for Taiwanese companies. Since Taiwanese companies are largely export oriented and receive payments in USD, any appreciation in the NTD against the USD will severely affed the bottom line of many export oriented companies in Taiwan. Chang explains

As Taiwanese exporters book costs in New Taiwan dollars, the foreign exchange rate can affect their competitiveness,” Chang said.

In April, Chang told investors that a strong NT dollar would erode the profitability of TSMC. For every 1 percent rise in the local currency, it would cut 0.4 percentage points off TSMC’s operating profit margin, he said, meaning the chipmaker would make NT$26 billion, or NT$1 per share, less in net profits this year.

Chang is quoted as saying Samsung so successful because not only did Samsung do "a great job" themselves but that the "South Korean government was also a great help to the company, especially on the foreign-exchange front.” In response, the Taiwan's Central Bank has argued that in fact, the fx rate in Taiwan has been far more stable thank the Korean Won. As per the Taipei Times:

The central bank yesterday said the New Taiwan dollar has been more stable than the South Korean won over the past three-and-a-half years, which has helped local exporters to reduce foreign exchange risk.

The comments came after Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) chairman Morris Chang (張忠謀) last Friday criticized government agencies, including the central bank, of not doing enough to protect local companies from the impact of strong NT dollar gains against the US dollar.

In response, the central bank said in an e-mailed statement that it was not allowed to control the foreign exchange rate and that the bank opted for the policy of keeping the local currency at a managed floating rate.

In the more than three years since Dec. 31, 2007, the NT dollar’s fluctuation rate against the greenback was 4.15 percent, much tamer than the won’s rate of 14.51 percent, the statement said.

The effects of fx rates on companies can be devastating as well as beneficial - but at the end of the day fx risk should be accounted for in any long term strategy session, especially for companies that primarily do deals in foreign countries. After all, there are a multitude of options companies can take to mitigate against fx risk. They will not always be immune to it, but they can, with proper planning and strategy, move to hedge against violent fluctuations in the fx rates (thinking forwards and futures here).