This paper investigates the exchange rate undervaluation policy in Taiwan since 1998. We examine how currency undervaluation affects economic growth, industrial upgrading, monetary policy, house prices, and fiscal structure. Overall, we argue that the undervaluation policy adopted by the Central Bank of Taiwan has several negative impacts on Taiwan's economy. It is suggested that the Central Bank of Taiwan should discard the undervaluation policy. The authorities should move towards a more fully market-determined exchange rate, reduce foreign exchange interventions, and increase the transparency and accountability of exchange rate policy.