If the economic effects of the COVID-19 pandemic are not addressed, they could pose an even greater challenge than those of climate change, the central bank said in a report on Friday.
Calling the pandemic a natural disaster, the report said that while climate change affects economic and financial systems gradually, predictably and over a long term, the pandemic’s effects are immediate, sudden and highly uncertain.
Major economies have adopted large-scale relief and stimulus packages to cope with the fallout of the pandemic, while major central banks have adopted emergency measures such as loosening monetary policies, the report said.
Photo: Tyrone Siu, Reuters
The US Federal Reserve, European Central Bank, Bank of Japan and other major central banks have accelerated their pace of purchasing bonds on a large scale, even faster than in the 2008 global financial crisis, which has led their asset scale to reach record highs, the report said.
As of last month, the Fed’s balance sheet had expanded 73.14 percent to US$7.22 trillion from US$4.17 trillion at the beginning of this year, while the European Central Bank’s balance sheet had grown 46.7 percent from 4.69 trillion euros to 6.88 trillion euros (US$5.76 trillion to US$8.451 trillion), and Bank of Japan’s had risen 23.25 percent from ￥572 trillion to ￥705 trillion (US$5.53 trillion to US$6.81 trillion), the report said.
The three major central banks have also seen the ratios of their bloated balance sheets to GDP rise significantly this year, about three to six times of those before the global financial crisis, it added.
In the face of the central banks’ loose monetary policies, including quantitative easing, emerging economies are inundated with large capital inflows and face severe challenges, such as exchange-rate appreciation, asset bubbles and inflationary pressure, the report said.
Taiwan, as a small, open economy, cannot avoid the spillover effects from these policies, and therefore the greater fluctuations in the exchange rate of the New Taiwan dollar has created a challenge for the nation, it said.
As Taiwan has large excess savings and the government still has some leeway to implement fiscal measures, it should seek to channel abundant capital from the private sector to real investment, while implementing structural reforms in the economy, to boost employment and achieve sustainable growth, the central bank said.
However, the real solution to COVID-19-induced problems depends on whether the virus abates, as well as on the success and widespread utilization of COVID-19 vaccines, it said.
“The central bank hopes that effective vaccines for COVID-19 can be developed as soon as possible, and that vaccinations proceed smoothly, so that the effects of the pandemic can be eased as soon as possible, and loose monetary policies adopted by major central banks can end in an orderly manner, thereby alleviating the worries of financial instability and reducing the spillover effect suffered by small open economies,” the report said.
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