Massive capital repatriation from abroad might lead to appreciation pressure on the New Taiwan dollar and weaken the central bank’s ability to regulate the local economy if the money is not properly guided to real investment, bank Governor Yang Chin-long (楊金龍) said yesterday.
“Massive capital repatriation, if not used for real investment, but parked in local financial markets, would weigh on interest rates and put pressure on the local currency to appreciate,” Yang told a seminar on the impact of capital repatriation.
The Legislative Yuan is reviewing bills regarding the issue. Taiwanese with capital abroad have indicated a willingness to wire money home if the government would grant favorable tax terms.
Taiwan has since the 1990s loosened restrictions on cross-border capital movements, enabling global funds to be main players in the local foreign exchange market, which was previously handled by exporters and importers.
Transactions by global funds last year equaled 10 times the commodity trade balance, Yang said.
Ample liquidity has long been blamed for low interest rates in Taiwan, and capital repatriation, if seeking to convert into NT dollars, would deepen the trend and drive up the currency, he said.
“That would pose a challenge to the central bank’s monetary policy and its effectiveness,” Yang said.
The central bank can intervene to slow abnormal market movements, but is incapable of reversing the tide, he added.
Fund outflows are believed to have accounted for the NT dollar’s previous weakening after Washington in May raised tariffs on US$200 billion of Chinese goods, and the recent gain after US Federal Reserve last month hinted about interest rate cuts and Washington stepped back from more tariff hikes.
Being small and open, Taiwan is susceptible to external tumults, Yang said.
Excess savings rates averaged 11.4 percent between 2009 and last year, aided partly by the fast-aging population and low birthrates, while a lack of investment interest and tools also played a role, Yang said.
New legislation covering capital repatriation should focus on guiding the money to real investments, such as infrastructure enhancement projects, long-term care, encouragement of innovation and global expansion, so they can help boost the nation’s competitiveness, wages and GDP growth, the governor said.
Excessive liquidity could also be used to strengthen the domestic wealth management business, by encouraging companies to design products that meet retirement and wealth succession needs as the society ages, he said.
Wealth gains from investments would help offset the negative impact of the nation’s low interest rates and allow investors to spend more, Yang said.
Monetary policy would be more effective when idle assets decline, he added.