Former central bank governor Perng Fai-nan (彭淮南) worked hard to keep Taiwan financially stable through the 1997 Asian financial crisis, the 2001 dotcom bubble, the 2008-2009 global financial crisis and the 2012 European debt crisis, before he retired in February 2018 after 20 years in the position. Under Perng, the central bank kept interest rates relatively low to benefit economic growth and made frequent interventions in the market to stem appreciation of the New Taiwan dollar.
Perng’s efforts were often talked about by economists and businesspeople before his retirement, and they still stir up a lot of discussion.
Early this month, two current central bank board members and one former member published a book that is raising eyebrows because it focuses on the bank’s monetary policies under Perng, and their economic and social ramifications, namely rising home prices and slower industrial upgrades.
Central bank Deputy Governor Chen Nan-kuang (陳南光) even wrote an introduction for the book, which has triggered the question of why board members cannot discuss the issues at their meetings, but can make their deep disagreements public.
The book discusses the central bank’s function, its monetary policies, the nation’s huge foreign-exchange reserves and the bank’s balance sheet, but one long chapter reviews its policymaking process over the two decades under Perng. The authors lay out what they see to be the long-term damage that Perng’s rigid policies did to the economy, as well as his way of preaching his ideas to others.
Perng did staunchly defend his currency and interest rate policies, leaving little room for criticism, but while his governance style deserves further discussion, his leadership guided Taiwan through major financial turmoil in the world with relatively little damage and kept the economy developing steadily.
Certainly, low interest rates have played a key role in pushing home prices higher, and the central bank should have implemented selective credit controls or macroprudential measures earlier to curb housing prices from surging so quickly.
However, interest rates are a broad and complicated issue, affecting the overall economic situation. Soaring home prices are not only caused by low interest rates, but also large fund inflows, the tax system’s imperfect handling of real estate and the government’s tendency to implement policies that accommodate large construction firms.
While the central bank’s intention of maintaining a weak NT dollar has been criticized for driving up the cost of imported equipment and materials, and hindering businesses from upgrading and moving up the value chain, how could the economy withstand the impact of sudden currency appreciation, or frequent inflows and outflows of hot money, given its “shallowness,” or that Taiwan is not an IMF member? How would it have been possible for manufacturers to stand firm?
This book places pressure on the central bank under Governor Yang Chin-long (楊金龍). Since taking the helm in 2019, Yang has made every effort to explain bank policies to ordinary people — unlike his predecessor — and moving forward, the bank must double down on communicating with and effectively persuading the outside world, rather than adopting Perng’s preachiness.
People should view the book as another way that the central bank is improving its transparency and accountability, at a time when faith in public institutions is wavering.
Whether the bank’s board members are making remarks, giving speeches or writing articles, their goal is to communicate their views on monetary policy to the outside world, and assist the public in understanding how policies are formulated and what they can achieve — such is the beauty of public outreach in the post-Perng era.
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