Effects of Washington shutdown on Taiwan minimal: central bank

By Ted Chen, The China Post

TAIPEI, Taiwan — Central Bank Governor Perng Fai-nan stated at yesterday’s legislative session that the potential effects of the U.S. federal government’s partial shutdown upon Taiwan are expected to be minimal.

Perng said that U.S. Treasury bonds remain the world’s most effective investment vehicle, and clarified that the R.O.C.’s central bank has no plans of liquidating its holdings. According to Perng, chances are low that the Fed will liquidate its holdings of bonds en masse, as any such move would cause a significant disruption to global financial markets.

Moody’s estimated, however, that the U.S. economy sustained a significant impact from the previous federal government shutdown in 1995, with GDP growth falling from 3 percent to 1.6 percent. In his statement, Perng cited 17 previous instances in which the U.S. federal government experienced shutdowns, with the duration of the shutdown ranging from one to 21 days.

Perng did not deny a lawmaker’s claim that Taiwan currently holds U.S. treasury bonds with a value of about US$150 billion, but did emphasize that the nation’s holdings of foreign reserves now include renminbi.

Perng, however, declined to specify the amount of renminbi held by the central bank, as well as the proportion of renminbi relative to its overall foreign reserve holdings. Taiwan is among 11 nations and two international monetary institutions which employ the renminbi as a reserve currency, said Perng, who added that the central bank acquired its reserves of renminbi less than six months ago. Perng Calls for Greater Regulation of Housing Market In the same legislative session, Perng urged strengthened measures to curb skyrocketing housing and property prices in the Greater Taipei area, particularly regulations on the practice of pre-selling — a developer’s practice of selling property to a buyer before it is built. With its high degree of leverage, pre-selling is tantamount to futures contract trading, as speculators can easily purchase 10 pre-sale properties for the price of one actual property, said Perng. Accordingly, pre-selling is a major factor in rising house prices and needs to be addressed, according to Perng.

Responding to rumors that the central bank may raise interest rates, Perng told lawmakers that the decision depends on a number of factors, including developments in the global economy and inflation. Perng added that the decision is not dependent on his opinion alone and requires the approval of board members of the central bank. In response to growing concerns over the pressures of an energy price hike in October, Perng stated that the rising cost of electricity would likely make no more than a 0.05-percent dent on Taiwan’s consumer price index (CPI), which has been holding steady throughout the year. With less than three months left in 2013, the Director-General of the Department of Budget, Accounting and Statistics estimates the overall impact of a utilities price hike at less than 1.07 percent in 2013. Perng pledged to utilize the tools at the central bank’s disposal to stabilize the prices of consumer goods, but warned that resolving the lingering problem of receding wages relies on business innovation to create greater value and encourage higher compensation.