Taiwan Central Bank Insiders Call for Overhaul of Dollar Policy

Three current and former members of Taiwan’s central bank board are calling for an overhaul of its currency policy, saying efforts to tamp down on the local dollar’s appreciation is increasingly having a negative effect on the economy.

Board members Li Yi-ting and Chen Shiu-sheng, and ex-member Wu Tsong-min, have co-authored a book with writer Ariel Chen to be published in April.

According to an excerpt of the book seen by Bloomberg News, the authors acknowledge that a devalued currency may have been beneficial to Taiwan’s economic growth in the past, but it’s also driven up costs of imported materials and equipment. That’s inhibited the incentives for businesses to move up the value chain, keeping them tied to a low-cost production model, they say.

Taiwan Central Bank Insiders Call for Overhaul of Dollar Policy

For the two decades former Governor Perng Fai-nan was at the helm between 1998 and 2018, the central bank closely managed the level of the Taiwan dollar, ensuring it didn’t appreciated beyond 28.5 to the greenback. He also oversaw a more-than 440% increase in Taiwan’s foreign reserves.

The central bank’s huge reserves have distorted its decision-making processes, the authors say. The monetary authority inevitably has to consider the impact of any interest-rate decisions on the bank’s balance sheet, rather than focusing purely on what would be best for the economy, they say.

Deputy Governor Yen Tsung-ta said in response to queries from Bloomberg News 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 Governor Yang Chin-long, 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 suggest three main areas of reform: strengthening the bank’s independence and oversight of its reserves, improving transparency and accountability and reforming the bank’s decision-making process on monetary policy.

The book concludes with the authors expressing their hope the central bank will implement their recommended changes, which, they predict, will gradually improve the problems caused by Taiwan’s monetary policy over the past 20 years.

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