Central bank says its independence unrelated to earnings

08/09/2022 08:43 PM
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CNA file photo
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Taipei, Aug. 9 (CNA) The central bank on Monday said it does not sacrifice policymaking independence for higher earnings in a bid to maximize the income it gives to the national treasury, following recent criticism from academics.

In a statement, the central bank said it is not legally obligated to hand over its earnings to the treasury under the provisions of the Central Bank Act and as such would never seek to raise earnings by compromising its policymaking independence.

The central bank cited Article 2 of the Central Bank Act as saying the bank's primary objectives are to promote financial stability, guide sound banking operations, maintain the stability of the internal and external value of the currency as well as foster economic development within the scope of the above objectives.

The statement from the central bank came after Academia Sinica, the top research institution in Taiwan, released a white paper on "Policy Recommendations for Monetary and Financial Reforms in Taiwan" earlier in the day, aiming to promote monetary and financial stability in the country.

At a press conference where the white paper was unveiled, Yiiting Li (李怡庭), an academic from Academia Sinica, suggested the central bank should seek to boost its independence, which she implied was undermined by the requirement to submit earnings to the treasury.

Li, who was chosen as one of the new directors of the central bank earlier this year, said the bank's earnings accounted for more than 10 percent of government revenue over the past 20 years, compared with less than 2 percent in many other countries.

In early July, Li had said at a news conference after a closed-door forum on monetary and financial reform in Taiwan held by Academia Sinica's Institute of Economics that she suspects the central bank tends to keep interest rates low and foreign exchange reserves high because it has to take into account the need to make itself profitable and submit its earnings to the treasury.

However, the central bank said its board of directors and supervisors always take into account economic conditions at home and abroad before adjusting key interest rates, while it emphasized that movements in the Taiwan dollar's exchange rate are based on market demand.

"Any income accrued from changes in the exchange rate is not booked as part of the bank's annual earnings so it is not necessary for the bank to use low interest rates or a lower Taiwan dollar to help rake in more earnings to satisfy the treasury," the central bank said.

Since March, the U.S. Federal Reserve and local central bank have kicked off a rate hike cycle to rein in rising inflation. However, while the Fed has raised its key interest rates by 225 basis points, the local central bank only hiked interest rates by 37.5 basis points.

Higher interest rates on the U.S. market have boosted the greenback against the Taiwan dollar as foreign investors moved their funds out of the country.

The central bank said it will continue to review its monetary policy making mechanism in a bid to make prompt adjustments in the face of a fast changing local and foreign financial environment.

In response to a suggestion by some academics that Taiwan should establish a sovereign wealth fund by assigning money from the postal savings fund and insurance funds as well as the surplus from foreign exchange reserves, the central bank said it is in favor of the idea. However, it emphasized that a sovereign wealth fund should not be set up until a special law is passed to allow an independent entity to run the fund.

A sovereign wealth fund is a state-owned investment fund comprised of money generated by the government, often derived from a country's surplus reserves and employed to benefit the country's economy and its citizens.

In the white paper, Academia Sinica also called on the central bank to release data on its foreign exchange interventions, set up a full-time board of directors, and evaluate the advantages and disadvantages of digital currencies based on global financial trends.

Wang Ping (王平), another academic, said at the news conference that the central bank should come up with its own forward guidance and establish a comprehensive data analysis framework like the Fed to improve its independence, accountability and transparency.

(By Su Ssu-yun and Frances Huang)

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