Yiting Li (???), an academician at Academia Sinica, the top research institution in Taiwan, on Friday urged the central bank to disclose the value of its market interventions in a bid to facilitate more accurate academic research.
Li, a newly elected academician and central bank board member, said currently the bank does not disclose any details about market intervention, so it is hard for scholars to obtain exact historic records about the bank’s interventions for their studies.
Li made the comments at a news conference after a closed-door forum on monetary and financial reform in Taiwan held by Academia Sinica’s Institute of Economics on Friday.
During the forum, Chen Nan-kuang (???), deputy governor of the central bank, and several monetary experts from the U.S. Federal Reserve Bank, exchanged views with Academia Sinica scholars about financial reform in Taiwan.
The Institute of Economics also presented a draft white paper in preparation for offering advice on financial reform.
Without any market intervention details, Li said, scholars have to use changes in the country’s foreign exchange reserves and the central bank’s foreign assets to estimate the value of market interventions.
This year, the Taiwan dollar has weakened against the greenback because of rate hikes by the U.S. Federal Reserve to fight inflation, so the central bank has stepped in to slow down the depreciation of the local currency, especially in March and April, and has admitted to doing so.
However, although the bank had said its intervention pushed down Taiwan’s forex reserves in those two months, it did not reveal exactly how much it spent selling greenbacks to buy Taiwan dollars.
As for forex reserves in June, the central bank admitted it intervened to cap the upturn of the U.S. dollar, but said only that its intervention was limited and had minimal impact on the value of forex reserves in the month.
In contrast, the central bank stepped in during most forex trading sessions in 2021 to limit the Taiwan dollar’s gains as the Fed kept pumping funds into the market, but never admitted to intervening, saying only that it had a responsibility to fight volatility and maintain market stability.
Li said central banks in 43 countries including Japan, South Korea and Singapore disclose market intervention data on a monthly or quarterly basis, while the U.S. Federal Reserve publishes its numbers two years after interventions.
Even if the local central bank disclosed its figures five years after intervening, that would be better than nothing, Li said.
At the news conference, Li called on the government to improve the central bank’s independence by giving it the ability to write its own budget.
At present, the central bank is viewed as a government-owned entity and has to submit its earnings to the treasury, which places pressure on the bank’s decision-making, Li said.
Li noted that she suspects the central bank tends to keep interest rates low and forex reserves high because it has to take into account the need to make itself profitable and submit its earnings to the treasury.
Under The Central Bank of the Republic of China (Taiwan) Act, the central bank has to set aside 50 percent of its net income as legal reserves.
Such a legal requirement for the central bank to submit its earnings to the treasury can undermine its independence, Li said.
Meanwhile, Wang Ping (??), another academician, said at the news conference that the central bank should come up with its own forward guidance as the Fed has done to improve its independence, accountability and transparency.
Such forward guidance enables the Fed to inform the public what the central bank will do to take on inflation when the consumer price index jumps to 8 percent, Wang said.
On its website, the Fed describes forward guidance as a tool that central banks use to communicate with the public about the likely future course of monetary policy, so individuals and businesses can use such information to make informed spending and investment decisions.
In addition to the need for forward guidance, Wang said, the central bank also needs a comprehensive data-analysis structure and a solid research foundation to improve decision-making.
By keeping interest rates low and underestimating the value of the Taiwan dollar, the central bank could undermine economic development, Wang warned.
Source: Focus Taiwan News Channel