Perng says forex reserves include yuan

GREENBACK::Perng said that the US government shutdown may impact on the global economy, but the central bank has no plans to change its ratio of US dollar holdings

By Amy Su  /  Staff reporter

Thu, Oct 03, 2013 - Page 13

Central bank Governor Perng Fai-nan (彭淮南) yesterday said the nation’s foreign exchange reserves have included Chinese yuan-based assets for nearly six months, citing the huge amount of cross-strait trades.

“The central bank’s foreign exchange reserves include yuan assets,” Perng said at a question-and-answer session at a meeting of the legislature’s Finance Committee.

Perng said the large amount of cross-strait trade and finance flows — which totaled about US$160 billion and US$500 billion a year respectively — was the major factor behind the central bank’s decision to add yuan-based assets to the foreign exchange reserves.

Meanwhile, China has become the world’s largest holder of foreign exchange reserves, which totaled US$3.56 trillion as of the end of June, with its credit ratings remaining steady, Perng added.

Following the signing of a cross-strait currency settlement on Aug. 31 last year and with local banks starting to offer yuan services earlier this year, the central bank approved the plan to add yuan assets into Taiwan’s foreign exchange reserves, he said.

However, Perng refused to specify the proportion of yuan assets in the foreign exchange reserves, citing concern over its effect on the market.

A total of 11 nations and two global financial institutions held yuan-based assets, before the central bank began gradually purchasing yuan-based assets over the past six months, Perng said.

The nation’s foreign exchange reserves amounted to US$409.39 billion at the end of August, an increase of US$270 million from the figure recorded a month earlier and marking the highest level in history, central bank data showed.

Perng also warned that the recent partial shutdown of the US government may have a negative impact on the global economy, but said the central bank would not change the proportion of US dollar-based assets in Taiwan’s overall foreign exchange reserves in the near term.

“Historically, the US has never defaulted on its debt during the past 17 times it shut down part of the government,” Perng said.

However, the issue will definitely affect the global economy, Perng said, adding that Moody’s Investors Service, in its latest report, cut its fourth-quarter growth forecast for the US economy to 1.6 percent from 3 percent previously, ont he assumption that the US government shuts down for three or four weeks.

In addition, Perng said that global economic and financial markets may be seriously hurt if the US Federal Reserve quits its quantitative easing (QE) all at once, adding that the US government may adopt a mild and orderly strategy for QE exit.