The central bank yesterday said it is open to the proposed establishment of a sovereign wealth fund, but voiced an objection to using the nation’s foreign exchange reserve to run it.
The central bank made the comments after lawmakers proposed legal revisions that would give the bank the power to use the foreign exchange reserve to run a sovereign wealth fund.
Sovereign wealth funds in some countries are created by governments using income from oil and other natural resources, fiscal surpluses or pension funds run by designated bodies, the central bank said.
Photo: REUTERS
Sovereign wealth funds pursue investment returns, but exchange reserves are intended to meet foreign exchange needs and maintain stability of the foreign exchange market, the central bank said.
The central bank places safety and liquidity above other concerns when managing foreign exchange reserves, it said.
It is inappropriate to place the central bank in charge of a sovereign wealth fund, because wealth creation it is not its mandate or part of its operations, the bank said.
Legal revisions to change the central bank’s duty would not work, as a sovereign wealth fund would require its own organizational structure, budget, staff and specialty to carry out its operations, it said.
Existing laws regarding government personnel, budget and state-run enterprise management pose another legal barrier, it added.
Securities and debt holdings by foreign investors last month amounted to 96 percent of foreign exchange reserves, allowing for sufficient foreign exchange reserves in case of massive capital outflows, the central bank said.
That Taiwan is not a member of the IMF lends further support to the need for ample liquidity, it said.
The nation’s assorted pension funds already operate like sovereign wealth funds, although they do not use the term, it said.
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