Member states of the Asian Development Bank (ADB) should pursue closer regional economic and financial cooperation, including the establishment of a formal regional exchange rate coordination mechanism, in the face of short-term capital inflows, inflationary pressures and other challenges, central bank Governor Perng Fai-nan (彭淮南) said in a report yesterday.
In his report delivered at the ADB’s annual meeting in Hanoi, Perng said member states have focused on developing Asian bond markets, establishing a regional economic surveillance system and pooling international reserves in their regional cooperation efforts after the 1997 financial crisis.
However, there is still room for improvement, such as establishing better regional clearing mechanisms and indigenous rating agencies, he said.
“My experience tells me that the size of the reserves pool remains too small to be meaningful in a crisis situation. The application and disbursement process for emergency lending would be more coherent with the direct involvement of an evenhanded multilateral institution like the ADB,” Perng said in the report.
Moreover, the management of volatile short-term cross-border capital flows triggered by the accommodative monetary policies of some advanced economies during the past year is another area demanding closer regional cooperation, including the formation of a regional exchange-rate coordination mechanism, he said.
“The impact of large short-term capital movements can be very destabilizing to small emerging economies,” Perng said. “Unfettered short-term capital movements can produce excess volatility and disorderly movements in exchange rates.”
Perng’s proposal to set up a regional exchange-rate coordination mechanism was not new as he has addressed the same issue in the past five years.
However, it remains noteworthy as most Asian currencies have appreciated substantially against the US dollar since last year, with the greenback weighed down by the US Federal Reserve’s quantitative easing program. So far this year, the NT dollar, for instance, has gained 5.24 percent in value versus the US dollar and closed at NT$28.778 yesterday in Taipei.
As in previous years, Perng yesterday called on the ADB to include Taiwan, as a sovereign economy, in regional cooperation.
He said all economies should be allowed to participate in any cooperative framework and should not be excluded because of political considerations.