Central bank Governor Yang Chin-long (楊金龍) yesterday defended the 2.6 percent return on its management of foreign exchange reserves as “prudent,” as lawmakers considered it overly conservative and proposed allocating 10 percent of the reserves to create a sovereign wealth fund to put the money to better use.
Yang made the remarks during a legislative hearing on proposals to put the central bank in charge of running a sovereign wealth fund as suggested by Taiwan People’s Party Legislator Cynthia Wu (吳欣盈) and colleagues.
“The 2.6 percent return falls in line with the central bank’s emphasis on safety and liquidity, and the yield would be 4.34 percent after factoring in compound benefits,” Yang told the hearing.
Photo: Chen Mei-ying, Taipei Times
Taiwan is the world’s fourth-largest holder of foreign exchange reserves at US$560.2 billion, behind China, Switzerland and Japan, helped by the central bank’s management skills, the monetary policymaker said.
Yang said it is unfair to compare the central bank’s management performance with sovereign wealth funds that have a greater risk appetite in pursuing returns.
The central bank is mandated to maintain stability in the local currency, the financial market and inflation, Yang said.
In line with that mandate, the central bank values safety and liquidity above other concerns as Taiwan is not a member of the IMF, which lends a helping hand when member states such as South Korea ran into solvency problems, the governor said.
Still, the central bank makes stable contributions annually, averaging 8.96 percent of overall revenue, to the national treasury, higher than Japan’s 0.66 percent, South Korea’s 1.1 percent, Switzerland’s 4.3 percent and Singapore’s 5.96 percent, Yang said.
Most central banks register uneven surpluses, because they opt for higher risks in pursuit of yields, he said.
Chinese National Party (KMT) Legislator Lo Ming-tsai (羅明才) said the central bank should have increased its gold stake and reaped a steep return of 20 percent this year.
Yang disagreed, saying that from 1989 to this year, the central bank’s gold holdings generated a return of 4.7 percent, with a volatility of 15.1 percent.
Furthermore, gold accounted for 4.81 percent of foreign exchange reserves in Taiwan, higher than China’s 4.13 percent, Japan’s 4.78 percent, Singapore’s 4.76 percent and South Korea’s 4.66 percent, Yang said.
US government bonds have proved a more robust investment tool, generating a 5.1 percent return with 4.6 percent volatility, he said.
Taiwan’s large foreign exchange reserves came from massive fund inflows induced by quantitative easing of major central banks to cope with recessions, Yang said, adding that the central bank needs sufficient reserves to keep the local currency stable in such times.
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