Taiwan Central Bank Highlights Benefits of Capital Controls


By Weiyi Lim
Oct. 9 (Bloomberg) — Taiwan’s central bank flagged the merits of capital controls to media in Taipei, sparking concern the island may introduce restrictions after surging inflows drove the local currency to a one-year high this month.
Capital controls are neither “ineffective nor harmful” for emerging-market economies, according to an excerpt from a United Nations Trade and Development Report that was contained in a document circulated among local media by the Central Bank of the Republic of China (Taiwan). So-called hot money cannot be depended on for economic growth, the release cited Nobel Prize- winning economist Joseph Stiglitz as saying.
“The reference materials handed out by the central bank indicate that it doesn’t want any short-term speculative behavior,” said Alan Liao, an economist at Chinatrust Commercial Bank in Taipei. “Before our exports have begun rebounding strongly, the central bank is likely to adhere to a policy of favoring a weaker Taiwan dollar.”
The island’s dollar should reflect the economy’s performance and policy makers will “step in to maintain order” in the currency market if “seasonal or irregular” factors cause excessive volatility, the central bank said Sept. 30. Taiwan’s gross domestic product fell 7.5 percent from a year earlier in the second quarter, a fourth straight decline, and exports dropped in September for the 13th month in a row.
Taiwan’s dollar has gained 1.7 percent in the past month versus the greenback as overseas investors bought $3.4 billion more of the island’s shares than they sold, taking net purchases for the year to $12.1 billion.
‘Adverse Implications’
The currency was 0.2 percent lower at NT$32.206 per U.S. dollar as of 10:39 a.m. in Taipei. It reached NT$31.995 on Oct. 1, the strongest level since the same date in 2008.
The central bank document, received today by Bloomberg News, quoted a Group of Seven nations report as saying “excessive volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.” The handout is for the “media’s reference,” the bank said in an e- mailed statement.
The Commercial Times newspaper yesterday said the central bank is trying to identify foreign-exchange speculators by searching through bond sales data for September, when it started a crackdown on such investment. Taiwan’s central bank telephoned commercial banks last month advising against betting on a dollar decline, two traders at foreign banks said Sept. 24, asking not to be identified.
To contact the reporter on this story: Weiyi Lim in Taipei at Wlim26@bloomberg.net

Last Updated: October 8, 2009 23:02 EDT