Taiwan should consider a package of capital controls if it wants to curb currency swings driven by speculative fund inflows, Council for Economic Planning and Development Minister Christina Liu (劉憶如) said.
“We should actually discuss and talk about a capital control package if we really want to have capital controls,” Liu said in an interview on Thursday.
“If no other countries impose them, that will be best, but if some economies start to impose capital controls, then those who don’t will suffer the most. So we have to figure out some kind of capital control too,” she said.
Officials from Asia to Latin America have sought to curtail inflows drawn by higher growth rates to limit currency gains threatening exports. The Financial Supervisory Commission said last month it would restrict offshore funds to investing no more than 30 percent of their portfolios into domestic government bonds and money-market products.
Central bank Governor Perng Fai-nan (彭淮南) said on Nov. 29 that the bank wants to halve so-called hot money flows into Taiwan to NT$150 billion (US$5 billion). He also said no decision had yet been made on whether to levy a fee on deposits by foreigners in banks.
“We don’t want to be the target for speculators, forced to appreciate more than the fundamentals,” said Liu, a former presidential adviser.
The central bank so far “doesn’t discuss” the issue of capital controls with other ministries, “so I don’t know what’s in their mind,” she said.
The US Federal Reserve’s plan to inject US$600 billion into the world’s largest economy is spurring investment into Asia, Liu said.
“A lot of it is speculative funds,” she said.
The central bank has bought the US dollar in late trading almost every day for the past eight months to shield exporters. The New Taiwan dollar has risen 5.5 percent over the past three months against its US counterpart, the most in Asia, according to data compiled by Bloomberg.
The local currency traded at NT$30.485 at the close yesterday, according to Taipei Forex Inc. It reached NT$29.670 earlier, its strongest level since October 1997.
Taiwanese exporters seeking exchange-rate stability should hedge currency risk, as the fact that some companies might struggle does not mean the government should restrain the NT dollar over the long term, Liu said.
They should also target Asian consumers, not just European and US ones, she said.
Asian economies from Thailand to South Korea have taken steps this year to curb currency gains.
“It’s extremely important [that Taiwan] is in line with other Asian economies and other Asian currencies,” Liu said.
The NT dollar appreciation can be seen as a “healthy development” as long as it reflects the economy’s performance and is comparable with other Asian currencies, she said.
Recent reports have signaled that the economy is weathering the increase in its currency. Industrial production rose for the 15th straight month last month, while the unemployment rate fell to a two-year low.
The nation’s GDP is set to grow 9.32 percent this year, one of the world’s fastest rates, according to IMF data.
Domestic demand and closer economic links with China have been contributing to the expansion, Liu said.