Taiwan Central Banker Says Currency Policy Faces ‘Turning Point’

(Bloomberg) -- Taiwan won’t be able to fight the currency’s appreciation forcefully if increasingly profitable companies continue to attract investors to the local dollar, a member of the central bank’s board said.

“The next two years will be an important turning point,” central bank board member Chang Chien-yi told Bloomberg in a rare interview Wednesday. “If the competitiveness of Taiwan’s industries improves and the Taiwan dollar appreciates because the economic fundamentals are stronger, the central bank will have to respect the markets. It won’t be able to forcefully slow the currency’s appreciation.”

The trade war and tariffs on an array of Chinese-made goods has sparked a major reshuffling of Asian supply chains and given opportunities to a wide range of Taiwanese exporters as U.S. companies tried to source products from outside China, according to Chang. It will also allow Taiwan’s central bank to rethink its decades-old policy of intervening in currency markets, as exporters may be able to thrive without foreign-exchange support from the central bank, he said.

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Around 97% of companies in Taiwan are small and medium-sized enterprises and many of them are exporters, Chang said. These companies have traditionally been very vulnerable to fluctuations in exchange rates as they lacked the scale and sophistication to hedge their transactions with overseas clients, according to Chang, who also serves as the president of the Taiwan Institute of Economic Research.

“SMEs didn’t have the means for currency hedging and they didn’t have a lot of cash on hand. As soon as they received payments in U.S. dollars, they’d exchange it into Taiwan dollars to pay their suppliers and pay salaries,” Chang said by phone. “If the Taiwan dollar strengthened, not only might these companies have worked for nothing, they could also be at risk of going bankrupt, which could have caused all kinds of societal problems.”

Chang’s remarks are the latest signs of a new openness and tolerance for public debate from decision makers at Taiwan’s typically taciturn central bank. Last month, two current and one former member of the policy board co-authored a book discussing how much damage the bank’s efforts to maintain a weak currency had done to the economy over the past 20 years.

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While board members have given interviews in the past, it is rare for them to do so in their role as a central bank board member or to comment on the bank’s policies. Chang, who joined the policy board in January last year, applauded the bank for improving transparency under current Governor Yang Chin-long.

But he pointed out that there are other areas the bank still needs to improve. He agreed with his two board colleague who wrote in their book that almost all of the time at the quarterly board meetings is taken up by reports from each of the bank’s departments, leaving little time for the board to fully discuss its policies.

Most importantly, he says, the central bank should clearly define its monetary-policy goals, which would allow board members to discuss it in greater depth.

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