According to fours sources with knowledge of the situation at hand, Taiwan’s central bank has commenced investigations on 5 foreign banks for their alleged involvements in a $8 billion in net trading positions on the deliverable forwards market.

On Tuesday, officials from the country’s central bank had met the banks to discuss the situation with them, said sources on the condition of anonymity; sources prefer the cover of anonymity since they were not authorized to speak to the media.

These “banks had been engaged by grains firms to trade dollars in the offshore non-deliverable forwards (NDF) market where they would get a better exchange rate than they would at home,” revealed sources.

So far, sources have not disclosed the identify of the banks nor the grains firms.

Taiwan’s central bank did not respond to requests for comments.

While Taiwan has banned onshore trading of NDFs, companies are however allowed to do so via foreign banks’ overseas branches.

According to sources, given the size of the trades, it could potentially impact the Taiwan dollar exchange rate. The development comes at a time when the central bank facing growing headwinds on the strength of its currency.

The Taiwan dollar has continued to strengthen against the U.S. dollar, and the relatively large gap between the overseas non-deliverable forward market for the greenback and the deliverable forward market for the Taiwan dollar has created arbitrage opportunities, as they get a more favorable rate overseas.

So far this year, the Taiwan dollar has appreciated by 2.4% against the U.S. dollar. This adds to worries for the Taiwanese government given that its economy is export driven.

Taiwan is also wary of being labeled as a currency manipulator by the U.S.

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