The central bank yesterday rejected suggestions that it use the nation’s foreign-exchange reserves to establish a sovereign wealth fund, saying the two differ in operations and objectives.
Local media reported last week that former minister without portfolio Schive Chi (薛琦) had called for the establishment of a sovereign wealth fund to better manage the nation’s forex reserves, raise their profitability and help narrow the nation’s deficit.
However, the central bank did not agree, issuing a 49-page reference report in response.
“There are foreign-exchange reserves to maintain stability in the foreign-exchange market,” the bank said in the report.
As such, the reserves are only used to invest in financial instruments that have a high degree of security and liquidity, although they offer lower returns, the report said.
Sovereign wealth funds, on the other hand, can afford to take higher risks in exchange for higher returns, the bank said.
Although the nation’s forex reserves hit a record US$423.45 billion at the end of last month, more than 70 percent of these were in the form of marketable securities and New Taiwan dollar deposits held by foreign portfolio investors, with the real operating amount only standing at US$121.8 billion, central bank data showed.
Given these concerns, it is not suitable to use forex reserves to establish a sovereign wealth fund, the bank said, adding that pension funds in Taiwan already operate like sovereign wealth funds.
The central bank added that maintaining a dynamic yet stable New Taiwan dollar exchange rate was beneficial to the development of the nation’s financial industry.
The remarks were in response to a statement earlier this month by Taiwan Academy of Banking and Finance chairman Shea Jia-dong (許嘉棟), who said that the central bank’s focus on maintaining a steady currency rate has hampered the nation’s bid to become a regional financial center.
Citing the examples of Hong Kong, Singapore and Switzerland, which have stable currencies, but thriving financial industries, the central bank said its exchange rate policy has not hindered market liberalization and the development of the nation’s financial service providers.
Moreover, after the global financial crisis in 2008, maintaining financial stability has become an even more important issue for major countries worldwide, the central bank said, adding that too much volatility might erode a nation’s financial stability.
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