Central bank Governor Perng Fai-nan (彭淮南) yesterday called for the establishment of a formal regional exchange-rate coordination mechanism in Asia through which stable currency relationships can be established.
Perng said regional exchange rate stability was conducive to promoting economic and financial stability across Asia and that stable exchange rates would reduce transaction costs and uncertainties in exchange-rate movements.
“Lower transaction costs and reduced uncertainty of exchange-rate movements will boost growth in intra-regional trade and investment,” Perng said in a statement to the 43rd annual meeting of the Asian Development Bank (ADB) in Uzbekistan.
“It is all the more important to work hand-in-hand to shield Asian economies from external shocks. Regional cooperation at all levels and in all forms should be inclusive,” Perng said in the statement.
Perng said Asia’s strong economic recovery from the global crisis had attracted a resurgence of capital inflows and complicated the macroeconomic policies of each nation in the region.
“As [ADB] president Kuroda pointed out in a recent speech, the return of capital flows to the region — either by sheer size or volatility — could destabilize the recovery, and thus it is critical to carefully manage capital flows to the region to ward off potential asset bubbles,” Perng said.
The governor called on emerging economies to adjust their monetary policies to address the disorderly movements of exchange rates, saying that capital controls should be considered or adopted to promote financial stability.
“Besides efforts by individual countries, it was even more important to elevate this issue to the regional level,” he said. “East Asian countries have been cooperating under the framework of regional economic surveillance to monitor short-term capital flows.”
Perng yesterday also called an ad-hoc meeting of central bank executives during the intermission of the ADB’s annual meeting after learning that Financial Supervisory Commission Chairman Sean Chen (陳冲) told local newspapers published yesterday that low interest rates posed the greatest risk for the nation’s financial market.
Both the Chinese-language Commercial Times and Economic Daily News quoted Chen as saying yesterday that low interest rates would harm local banks and insurance companies’ businesses, after the central bank cut its discount rate to a record low of 1.25 percent earlier last year.
A central bank staff refused to elaborate on the details of the meeting when approached by the Taipei Times by telephone.
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