New governor faces many trials

By Tu Jenn-hwa 杜震華  / 

Thu, Feb 08, 2018 - Page 8

The Executive Yuan has announced that central bank Deputy Governor Yang Chin-long (楊金龍) is to replace Governor Perng Fai-nan (彭淮南), the first time a governor has been selected from within the bank.

Yang’s appointment has been met with approval and it will boost morale at the bank. The decision should also be praised for not avoiding any obvious political considerations, which was a concern for many people.

Yet, reasons for concern remain: Will the new governor be able to face international political and economic challenges?

Yang boasts an impressive resume: After obtaining a bachelor’s degree in banking and a master’s degree in international business from National Chengchi University, he earned a doctorate in economics from the University of Birmingham and served in the central bank’s economic research department, as chief representative of its London representative office and as director-general of its Department of Banking, before being promoted to deputy governor — a position he has held for 10 years.

With such an impeccable professional background, it is difficult to find fault with Yang’s selection. In addition, he was groomed by Perng, who gave Yang a lot of responsibility throughout the years.

Yang is likely the person most able to understand Perng’s thinking and direction, so there is probably no one more suitable than him.

On the other hand, it is precisely the appointment of Yang — because he will follow the rules set by Perng, which is in line with President Tsai Ing-wen’s (蔡英文) focus on being able to stand up to pressure — that could be seen as making the safe choice, and bank policy could become conservative and perpetuate policies that have been criticized in the past.

This could make it difficult for Yang to meet another of Tsai’s demands: good communication.

The new governor will be put to the test, and he will have to face few challenges that are tougher than anything Perng ever had to face.

First, the central bank in the past routinely used policies to depreciate the New Taiwan dollar and prevent the currency from appreciating to stimulate exports and create a more satisfactory economic growth rate.

However, external factors, such US Secretary of the Treasury Steven Mnuchin’s preference for a weak US dollar, makes it difficult for Taiwan to keep the NT dollar from appreciating.

Achieving satisfactory economic growth while commodity prices remain stable is likely to cause greater conflict between the central bank and the government and business.

If that happens, a greater resistance to pressure will be required if the central bank is to maintain its independence on the issue of exchange rates.

Second, cross-strait relations have deteriorated and continue to do so. The domestic investment environment should have improved as a result of Premier William Lai’s (賴清德) efforts, but worsened cross-strait relations might lead to declines in domestic and foreign investment.

However, the global period of lax monetary policies is coming to an end, and Taiwanese interest rates will rise in tandem with the rest of the world’s.

These factors will all play a part in the deteriorating economic situation and result in another conflict between the central bank and the government and business, this time over interest rates, which will further intensify the central bank’s challenges.

Third, the introduction of the “one fixed day off and one flexible rest day” rule and the government’s encouragement of wage increases have put pressure on commodity prices. Together with rising gasoline and natural gas prices, this is causing prices to go up.

Therefore, the new governor will face a more complicated issue regarding commodity prices: If the money supply is reduced to stabilize prices, increasing interest rates could have an impact on the weak economic upswing — in particular, housing prices, which have been driven down and further weaken the feeble economy.

The most worrisome aspect would be a repeat of the scenario where people were angry about the central bank’s decisionmaking, but did not dare speak up because of Perng’s strong response to criticism. Yang does not have the air of a proud winner who has received “A” grades for 14 consecutive years, so critics are likely to air their views regarding the bank’s policymaking.

If the central bank continues to shrink away from interacting with the outside world, it could face strong criticism.

Yang should consider establishing a platform for public interaction, such as holding monthly expert forums open to anyone, to give the public more information about the bank’s direction and operational strategies.

He could also hold an annual academic conference to provide a formal platform to discuss research results and deepen monetary policy research of currency policies, as well as the use of dual exchange rates.

Congratulations to Yang on his appointment. Hopefully Taiwan will see change.

Tu Jenn-hwa is a professor at Chinese Culture University’s English Program of Global Business.

Translated by Chang Ho-ming