Wed, Jan 13, 2010 - Page 11 News List

Central bank statement stresses capital controls

‘HOT MONEY’ The central bank used analyses from international agencies and well-known economists to discuss Asia’s asset bubbles and control of capital flows

By Kevin Chen  /  STAFF REPORTER

The nation’s central bank yesterday highlighted the importance of capital controls in a press statement released after the local foreign exchange market closed, marking the bank’s latest warning to the market since the recent appreciation of the local currency.

Without elaborating on why it issued the statement, the central bank cited a list of commentaries made by international agencies and well-known economists on Asia’s asset bubbles and control of international capital flows.

“The central bank is giving a warning to currency speculators as it fights hot money,” a local currency trader said by phone yesterday, declining to be named. “Some say the bank will give a verbal warning before taking any real action, but I think it will act if it feels a sense of urgency, and will do so without telling anyone.”

The New Taiwan dollar yesterday fell NT$0.01 to close at NT$31.79 versus the US dollar in Taipei trading, after closing at NT$31.780 on Monday, its strongest level since it reached NT$31.761 on Sept. 4, 2008.

In the morning session, the local currency at one point reached a new 16-month high at NT$31.715 as investors built up NT dollar positions amid the likelihood of continued foreign capital inflows.

So far this month, the NT dollar has risen NT$0.24, or 0.8 percent, against the greenback, Taipei Forex Inc data showed.

In yesterday’s statement, the central bank cited 19 comments since September last year from sources such as the UN, the G20, the IMF, the World Bank, the Asian Development Bank and Nobel economics prize winners Joseph Stiglitz and Paul Krugman, Harvard University economist Dani Rodrik and Norman Chan (陳德霖), chief executive of the Hong Kong Monetary Authority.

Of these, 10 quotes were aimed at addressing asset bubbles under the inflows of foreign funds, while 14 concerned the option of imposing capital controls to contain inflows of hot money.

It was not the first time the central bank has quoted views from various international organizations and economists to support the idea of capital controls.

On Oct. 9 last year, the central bank cited comments by Stiglitz, the UN and the G7 in a statement to criticize short-term, speculative currency trading on the exchange market, which aimed to drive up the NT dollar’s value.

However, yesterday’s statement was also a pre-emptive measure before Chinese institutional investors start investing in Taiwanese stocks after a cross-strait financial memorandum of understanding takes effect on Saturday, the currency trader said.

“The central bank is keeping a cautious eye on Chinese funds and wants to stem inflows of speculative foreign funds in the name of Chinese funds,” he said.

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