New central bank Governor Yang Chin-long (楊金龍) yesterday said he aims to keep the financial system and consumer prices stable as the nation’s small, but open economy is susceptible to the effects of global capital movements.
The bank would assist with domestic economic growth, but the goal requires the cooperation of fiscal and industrial policies to achieve the desired effect, he said.
“The future is still full of challenges as the trend of globalization goes on, which is not only reshaping the global supply chain, but also has profound significance on monetary and financial operations,” Yang told the audience at his swearing-in ceremony.
Yang succeeded Perng Fai-nan (彭淮南), who retired yesterday after spending 20 years as the head of the central bank.
Experience shows that wild capital movements not only upset the financial stability of small and open economies like Taiwan, but also trigger crises in emerging markets, as seen in the 1997 Asian financial crisis and the 2008 global financial crisis, Yang said.
Taiwan emerged from the external shocks without a credit crunch or system failure, thanks partly to Perng’s stewardship, which kept the New Taiwan dollar relatively stable despite the upheaval abroad.
The central bank has since 2009 introduced a series of select credit controls to rein in soaring property prices, especially for luxury homes in Taipei.
Domestic lenders have a risk-based capital of 13 percent, allowing them to absorb property price falls of up to 40 percent, Perng said in his speech at the handover ceremony.
The bad loan ratio declined from double-digit figures to 0.28 percent over the past 20 years, while the coverage ratio climbed to 135 percent, he said.
Yang was a capable choice to replace him, said Perng, who had reportedly recommended that his deputy succeed him.
“How to cope with the impact of capital movements on foreign-exchange rates, interest rates and financial stability remains a big challenge to the central bank,” Yang said.
The NT dollar has gained 1.73 percent against the US dollar so far this year after picking up 8.14 percent last year, according to the central bank’s Web site.
Exporters have frequently pleaded for the bank to intervene when the NT dollar strengthens, as the rise could erode their profits since they settle accounts in US dollars.
The fast development of financial technology might change how financial institutions operate and shake up the entire financial industry, although its effect on the central bank’s policy is limited at present, Yang said.
Financial technology is reshaping the payment industry’s infrastructure and could have a profound influence on the usefulness of monetary policy, he said.
The central bank will adopt an open mind to new ideas and new needs, he said.
Apart from closely monitoring the challenges that financial technology might bring, the central bank is going to improve its supervision and risk-control techniques using big data, artificial intelligence and other new technologies to help predict and analyze economic and financial conditions, he said.
The central bank would also explore the feasibility of enhancing the security and efficiency of payment systems by using decentralized leger technologies, Yang said.
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