We forecast that the New Taiwan dollar will be supported by Taiwan's large current-account surplus and its substantial foreign-exchange reserves. As a result, we expect a gradual appreciation in the value of the New Taiwan dollar against the US dollar in 2011-15, with the exchange rate strengthening from an average of NT$31.7:US$1 in 2010 to NT$27.4:US$1 in 2015. As the appreciation of the Taiwan currency should be gradual, it is unlikely to cause serious problems for the island's exporters. The CBC regularly intervenes in the foreign-exchange market, and the level of intervention could increase in certain circumstances. If Taiwan's economic recovery is not sustained in the forecast period (as we assume that it will be), or if neighbouring countries engage in a policy of competitive devaluation, the CBC is likely to intervene in foreign-exchange markets in an effort to weaken the New Taiwan dollar against the US dollar to support the export sector. With US interest rates set to remain low, especially in the early years of the forecast period, an unexpectedly rapid increase in interest rates in Taiwan could exert upward pressure on the local currency. Inflows of hot money will continue to play a major part in determining the path of the currency's exchange rate against the US dollar.