Three current and former members of Taiwan’s central bank board are calling for an overhaul of its currency policy, saying that efforts to tamp down on the New Taiwan dollar’s appreciation are increasingly having a negative effect on the economy.
Board members Li Yi-ting (李怡庭) and Chen Shiu-sheng (陳旭昇), and ex-member Wu Tsong-min (吳聰敏), have coauthored a book with writer Ariel Chen (陳虹宇) to be published next month.
The authors acknowledge that a devalued currency might have been beneficial to Taiwan’s economic growth in the past, but it has also driven up costs of imported materials and equipment, according to an excerpt of the book.
That has inhibited the incentives for businesses to move up the value chain, keeping them tied to a low-cost production model, they wrote.
For the two decades former central bank Governor Perng Fai-nan (彭淮南) was at the helm, from 1998 to 2018, the central bank closely managed the level of the NT dollar, ensuring it did not appreciate beyond NT$28.50 to the greenback. He also oversaw a more than 440 percent increase in Taiwan’s foreign reserves.
The central bank’s huge reserves have distorted its decisionmaking processes, the authors wrote.
The monetary authority inevitably has to consider the effects of any interest-rate decisions on the bank’s balance sheet, rather than focusing purely on what would be best for the economy, they wrote.
In response to queries, central bank Deputy Governor Yen Tzung-ta (嚴宗大) said that it would be “more appropriate to respond after reading the whole book.”
The authors lay out what they see as the long-term damage caused to the economy by Perng’s rigid and staunchly defended policies. Under central bank Governor Yang Chin-long (楊金龍), who assumed his role three years ago, the bank has eased its grip on the currency and been more open about its intervention in foreign-exchange markets.
The authors proposed three main areas of reform: strengthening the bank’s independence and oversight of its reserves, improving transparency and accountability and reforming the bank’s decisionmaking process on monetary policy.
The book concludes with the authors saying they hope the central bank will implement their recommended changes, which they predict would gradually improve the problems caused by Taiwan’s monetary policy over the past 20 years.
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