Taiwan’s Perng Attacks Monetary Easing for Spurring Instability

Taiwan’s Perng Attacks Monetary Easing for Spurring Instability

Taiwan’s central bank Governor Perng Fai-nan criticized monetary easing in advanced economies for destabilizing financial markets, as the Federal Reserve’s record stimulus last year spurs funds into emerging markets.Developed nations have an “exorbitant privilege” that needs to be tempered with a sense of responsibility, Perng wrote in an article for The Banker magazine posted on the monetary authority’s website yesterday. The overall benefit of unusually accommodating policy “remains to be seen,” while other countries suffer “unintended and undesirable consequences,” Perng said.

Global funds bought $9.2 billion more Taiwanese equities than they sold in 2013, exchange data show, as the U.S. and Japanese central banks purchased domestic bonds to lower interest rates. Taiwan’s monetary authority has sold the greenback on most days since 2012, according to the traders who asked not to be identified.

“It’s harsh, and I’ve never seen Governor Perng lash out like that,” said Tim Condon, Singapore-based head of Asian research at ING Groep NV. “Central banks need to be in the market to soothe this volatility. It makes for a complicated life when they have to intervene in the foreign-exchange market.”

Overseas investors account for 36 percent of currency trading in Taiwan, according to the article. The local dollar weakened an average 0.4 percent in the last half hour of trading last week amid suspected intervention. The central bank has said it would maintain order if excessive volatility endangers financial stability, after the Fed said it would cut its bond purchases by $10 billion starting from January.

Disrupted Markets

Monetary easing in developed nations, whose business cycles are “increasingly out of sync” with the rest of the world, has “seriously disrupted” global financial markets, Perng said. An independent monetary policy is “only attainable when the capital account is managed” because of the impact of the global financial cycle, he added.

The Jan. 2 article was published in a special issue for the World Economic Forum to be held in Davos, Switzerland on Jan. 22-25.

Taiwan’s dollar weakened 2.7 percent last year as the Fed prepared to reduce its bond-buying program. Exports, which account for about 60 percent of the island’s economy, climbed 1.4 percent in 2013, data showed yesterday, after shrinking 2.3 percent in the previous year.

The South Korean government will take action to stabilize the currency market to help companies cope with a weaker yen, the trade ministry said last week. The Japanese currency has slid 5.2 percent against the dollar since the end of June, as the South Korean won advanced 7.4 percent.

To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net