The central bank should consider implementing credit controls to rein in speculative capital inflows that are thought to have increased asset prices, possibly forming another bubble, Shea Jia-dong (許嘉棟), chairman of Taiwan Academy of Banking and Finance, told a seminar yesterday.
“The central bank should broaden its monitoring of consumer prices to include equities and property prices,” Shea said, throwing his support behind the bank’s recent “coffee breaks” with state-run bank executives in a bid to tighten mortgage loan credit to speculative home borrowers.
Shea is a former minister of finance and deputy governor of the central bank.
“International hot money, which makes no contribution to a country’s economic development, will cause serious disruption to a nation’s financial stability,” he said.
Although it is too early to call for a “Tobin tax” on speculative funds, Shea said that the monetary regulator should also consider following suit if European countries, China and India are mulling implementing the tax.
A Tobin tax is a tax on currency exchanges. Named after the Nobel laureate economist James Tobin, the tax is intended to put a penalty on short-term currency speculation. The original tax rate Tobin proposed was 1 percent, but it was lowered to between 0.1 percent and 0.25 percent by countries that adopted the tax.
Shea said that it would be up to the monetary regulator to decide the tax rate and how short-term speculation would be defined.
But Liang Kuo-yuan (梁國源), president of Polaris Research Institute (寶華綜合經濟研究院), yesterday doubted the effectiveness of such a tax.
“As innovative as it can be, the tax rate will have to be high enough to keep hot money out of the country,” Liang said by telephone.
Speculative funds can usually cover a meager tax penalty if the return is lucrative enough, he said.
He added that he believed the most effective way for the central bank to combat speculative “hot money” would be to maintain the local currency’s stability.
Last Thursday, central bank Governor Perng Fai-nan (彭淮南) told lawmakers that the amount of idle capital in Taiwan remained high, hinting that speculative money was propping up the value of the local currency.
Perng said between NT$300 billion (US$9.3 billion) and NT$320 billion of speculative funds from overseas remained in Taiwan, which was higher than the central bank’s “reasonable level” of between NT$100 billion and NT$130 billion, he said.
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