Fri, Jan 12, 2018 - Page 8 News List

Independence key for central bank

By Chao Wen-heng 趙文衡

Even worse, inappropriate political intervention will result in the bank making the wrong decisions on major policies.

My research on financial crises shows that one or two policy mistakes by the central bank could be enough to trigger a disastrous financial crisis. If that happens, all the government’s efforts to develop the economy will be undone overnight.

In the past, owing to the central bank’s professional and independent decisionmaking, Taiwan appeared to be immune to financial crises. In the post-Perng era, these two advantages could be weakened, thus also weakening Taiwan’s immunity to financial crises, and this is a major concern.

All this is not meant to stress the importance of Perng, but rather the importance of an independent central bank. It is very likely that the departure of Perng will seriously weaken the bank’s independence. The Organizational Act of the Executive Yuan and the Central Bank of the Republic of China (Taiwan) Act (中央銀行法) should be amended as soon as possible to complete the fundamental institutionalization of the central bank and to enshrine it in law.

The best way to complete the institutionalization of the central bank would be if Perng stayed on. No one better understands the importance of the bank’s independence than he does, and no one would be a more effective promoter of the bank’s institutionalization. However, Perng seems to be determined to leave and it appears that he will not accept any counteroffer.

As the main pillar propping up the bank, Perng’s withdrawal is not the responsible thing to do at this moment. If in the end Perng will not stay on to finish the task, his successor will have to make the institutionalization of the central bank’s independence the first order of the day when they take office, in order to ensure lasting order and stability.

Chao Wen-heng is an associate research fellow at the Taiwan Institute of Economic Research.

Translated by Lin Lee-kai

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