Life in Taiwan
When Local Liabilities Meet Dollar Assets
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“America is the Schelling point of global finance. We have the world’s reserve currency, the deepest and most liquid markets, and the strongest property rights. For these reasons, the United States is the premier destination for international capital. And the administration’s goal is to make it even more appealing for investors like you.” — US Treasury Secretary Scott Bessent at the Milken Institute Global Conference in Los Angeles, May 5, 2025.
One of the reasons I find financial institutions fascinating is that their balance sheets almost uniquely capture the interplay between micro and macro dynamics. This was true during the global financial crisis, which began in the bowels of the banking sector. Cross-referencing the financial statements of subprime lenders with those of investment banks in 2007 flagged how individual mortgage defaults would transform into systemic risk. That experience taught me to look for similar signals elsewhere – in Japan’s Norinchukin Bank, Chinese property developers, and clearing houses – each offering windows into broader economic shifts. Along the way, banks themselves have emphasized these connections, arguing that regulatory constraints on their balance sheets negatively impact broader economic growth. Now, Taiwan’s life insurance companies are offering a fresh perspective on this interplay.
This week, the Taiwanese Dollar jumped 8% against the US Dollar over two trading sessions. For equity market investors, this may not seem a large move but in foreign exchange, it was dubbed a “15-sigma event”. We’ve talked about multiple standard deviation moves in financial markets before and how remarkably frequently these supposedly once-in-the-universe events occur, but what made the move striking was the stability of the currency pair over many years. Having typically traded in a range between 28 and 32, this was its largest move in over 40 years.
There are a number of explanations. The US dollar has been weakening everywhere since tariffs were unveiled at the beginning of April and it remains the highest profile asset not to have recovered. Taiwan is particularly exposed: Its central bank holds $583 billion of foreign currency reserves, equivalent to around 72% of GDP, the majority of which are in US dollars. In addition, its residents’ international investment position is one of the highest in the world, at over 300% of GDP. Having been on the US Treasury’s foreign exchange “monitoring list” for three years for maintaining a weak currency, Taiwan’s central bank may have shied from intervening once the move took hold.
Propelling the move, though, were Taiwan’s life insurance companies, which have accumulated one of the largest pools of dollar assets in Asia. Their journey from domestic savings institutions to major players in global fixed income markets reveals how regulatory decisions can reshape financial landscapes – and create new vulnerabilities in unexpected places. To explore how this transformation occurred and what it means for global markets, read on. (Oh, and if you make it through the paywall, there’s a bonus comment on Warren Buffett and Berkshire at the end.)