The central bank’s quarterly board meeting on Thursday last week yielded little surprise. The benchmark rediscount rate was kept at 1.375 percent for the eighth consecutive quarter and the bank said it would maintain an accommodative monetary policy to ensure price stability, and foster steady economic and financial development.
The bank’s policymaking board decided to raise this year’s GDP growth forecast from 2.58 percent to 2.68 percent, citing a better-than-expected first quarter, as well as steady growth in exports and private investment. The bank also adjusted its inflation forecast upward to 1.4 percent, but revised its core inflation forecast downward to 1.16 percent in view of reductions in telecommunication prices.
The central bank live-streamed the news conference after its board meeting. The broadcast, a first, was an initiative spearheaded by Governor Yang Chin-long (楊金龍). It shows the bank’s efforts to build public trust through better transparency and clear communication, and suggests that Yang intends to walk his own path quite different from that of former governor Perng Fai-nan (彭淮南) as the nation responds to the so-called “fourth industrial revolution” driven by smart manufacturing, financial technology (fintech), and data exchange and integration.
Yang also for the first time commented on Web-based banks, which could make their debut in Taiwan before the end of next year if the Financial Supervisory Commission completes law amendments in October and starts to take applications from November.
Taiwan is technologically ready to develop Web-only banks, but there are potential downsides, such as limited profitability, lower client loyalty and security issues, Yang said, urging banking authorities to pay close attention to possible risks associated with online banks, including liquidity management, information security and compliance issues.
He said the financial industry is in need of innovation and upgrade, but the government must address the matter without undermining financial stability.
On Thursday, Yang discussed the development of cryptocurrency trading and initial coin offerings. His remarks on those issues clearly distinguish him from Perng, who was mainly vigilant about monetary, macroeconomic and foreign-exchange policies, and some of his comments reminded the financial industry that in embracing any new system, it must ensure that consumers and markets are protected, and that it keeps to the rules to prevent money laundering.
The central bank oversees the systems that are used to transfer large amounts of money between financial institutions, and Yang said that the bank is researching the merits of Web-only banks and assessing their likely impacts on the nation’s currency, credit, foreign exchange policy and financial stability.
Nonetheless, the establishment of Internet-based banks in Taiwan is moving at a slower pace than in neighboring markets such as China, Japan and South Korea, let alone Western economies such as the US, the UK and Germany.
While local banks mainly have competitive advantages in core businesses such as lending and deposits, and regulators aim to devise tough standards to protect consumers, the launch of Web-only banks and the development of other fintech services will challenge traditional banking in the long term.
S&P Global Ratings this month said in a report that Taiwan’s deregulation of fintech development has been more gradual than in other countries, which has resulted in less innovation and lower take-up.
It is a welcome development that the central bank has finally set its eyes on some “techy” innovations in finance, but it would be better if it would give such technologies more consistent attention from now on.
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