The Central Bank and the FSC Bicker: Does the Executive Yuan have Adult Supervision?

The Central Bank and the FSC Bicker: Does the Executive Yuan have Adult Supervision?
China Times News editorial (Taipei, Taiwan, ROC)
A Translation
May 12, 2010

Recently two cabinet heads with solid reputations repeatedly exchanged long distance fire. First Financial Supervisory Commission Chairman Sean Chen responded to questions from legislators, saying that the Central Bank had kept interest rates too low. As a result, the interest rate spreads were also low. This hindered the bank insurance industry. Low borrowing costs also contributed to mortgage expansion, and indirectly to rising prices. In response, Central Bank President Peng Huai-nan expressed concern. He stressed the importance of Central Bank control over hot money policy. He did not think their policies were wrong. This is how two independent entities within the Executive Yuan, the Central Bank and the Financial Supervisory Commission, became embroiled in a long distance shouting match in the private rather than public sector.

The Central Bank and the Financial Supervisory Commission each have their own position. Neither is necessarily right. The conflict between Sean Chen and Peng Huai-nan is merely a reflection of the well known "impossible triangle" in international finance. The so-called impossible triangle refers to impossibility of reconciling rapidly changing exchange rates, interest rates, and foreign exchange rates.

Consider the current situation on Taiwan. Currently we have a surplus of hot money, an increase in the money supply, and too low interest rates. These are all facts. If the Central Bank attempts to reduce the pressure from hot money, and raises interest rates, it must stop hot money inflows. The most direct approach to stopping hot money, is to allow the NT Dollar to appreciate, making the NT Dollar expensive. This in turn reduces pressure on the foreign exchange market to sell foreign currency in order to buy NT Dollars. But if the Central Bank does not want to the NT Dollar to appreciate, but instead pegs the exchange rate, It will be forced to adopt a contrarian strategy. It will be compelled to endlessly buy foreign currency and sell NT Dollars on the foreign exchange market. This will eventually increase the currency supply in the domestic market. The only way the Central Bank can reconcile exchange rates with interest rates, is to prevent the foreign exchange market from operating freely, blocking the entry of foreign currency. Exchange rates, interest rates, and foreign exchange rates cannot be reconciled simultaneously. Hence the term, "impossible triangle."

Sean Chen is justifiably worried about potential harm from too low interest rates. Interest rates have fallen to the 1% level. The financial industry is a pool of stagnant water. Businesses that depend upon interest rate spreads cannot survive. Financial managers of course have their own worries. Peng Huai-nan insists on pegging the NT Dollar to the US Dollar. As a result, the NT Dollar is undervalued relative to other world currencies. This is not necessarily wrong. Stable exchange rates have a huge impact on imports and exports. For Peng to maintain his currency exchange rate policy for the sake of trade stability is not unjustified.

The world of finance has its "impossible triangle." That those concerned about interest rates will clash with those concerned about exchange rates is inevitable. The global financial environment remains unstable in the wake of last year's financial tsunami. Iceland and Greece are gravely ill. The Wall Street stock market crash has also raised concerns. Hot money is rapidly moving around the world. Foreign exchange moves freely in and out of Taiwan. Taiwan is merely one of many relay points for global hot money transfers. Under such volatile circumstances, Executive Yuan cabinet members cannot hammer out a clear and absolute exchange rate and interest rate policy. They can only reach a mutually acceptable compromise. Understanding the necessity of such compromise, we cannot help but be critical of the Executive Yuan.

The FSC and the Central Bank are independent entities. Exchange rate and Interest rate policy is highly specialized. But both entities are under the aegis of the Executive Yuan. Both entities are answerable to the premier and the vice premier. To sit idly by as two cabinet members exchange fire in public, instead of communicating inside the Executive Yuan, makes no sense whatsoever. Wu Den-yih himself does not have a financial background. But don't we have a vice premier who is a so-called financial expert? The vice premier is about to run for Xinbei City Mayor. He may have his mind on other things than internecine warfare within the Executive Yuan. But aren't there any economics and finance officials who can coordinate? Even assuming the government is busy dealing with ECFA and public opinion to respond to such trivia, doesn't the premier have a trusted secretary general under his command who can mediate such disputes? The Central Bank and the Financial Supervisory Commission have been exchanging fire for some time now. Why has the Executive Yuan sat by and said nothing?

Premier Wu Den-yih has stressed his "Meat and Potatoes Economics." But he has sat idly by as the Central Bank and the Financial Supervisory Commission exchange fire. Perhaps Wu believes exchange rates and interest rates have a limited impact on the general public, and any bickering is unlikely to result in public discontent. We disagree. The premier and vice premier are general officers. They must not be constrained by military specialists. They may not rationalize their shallow understanding of certain fields, citing "specialization." A good general must be informed about all sorts of military specialties. He must at least have a rudimentary understanding of each specialty. A lack of specialized knowledge must be an incentive to study harder, not an excuse for inattention.

The premier has allowed his subordinates to attack each other in public. This has undermined the authority of his cabinet. It is not conducive to an eventual consensus on other fiscal policies. It undermines public trust in the cabinet. In any event, when the adults are away the children will play, quarreling and bickering. The premier sits high on his perch. Meanwhile below, we hear only an endless cacophony. The public cannot helping wondering, does the Executive Yuan have adult supervision?

中時電子報 新聞
中國時報 　2010.05.12
社論－央行、金管會互嗆 院裡有大人在嗎？
本報訊

最近，內閣中聲望不差的兩位首長多次隔空駁火。先是金管會主委陳?在回應立委質詢時指出，央行將利率壓得太低，因而利差也低，以致銀行保險業施展受限。此外，借款成本低，也造成房貸膨脹，間接促成了房價高漲。隨後，央行總裁彭淮南亦予關切，強調央行管制熱錢政策的重要性，也不認為其政策有錯。就這樣，行政院轄下兩大獨立機關─央行與金管會，在社會（而非行政院內）上演了一場機關之間的隔空互嗆。

就事理而言，央行與金管會各有立場，其中沒有誰對誰錯的必然性。國際金融上有著名的不可能三角論（impossible trinity），正反映陳?與彭淮南之間的矛盾。所謂不可能三角是指匯率、利率與外匯自由移動之間無法兼顧的困境。

以台灣目前的情況觀之，當前游資過多、貨幣供給增加、利率過低，這些都是事實。央行若要減緩游資壓力、抬高利率，就得阻擋熱錢流入。阻絕熱錢最直接了當的做法，就是讓台幣升值，使台幣變「貴」，進而阻卻外匯市場上「賣外幣買台幣」的壓力。但若央行堅持不想讓台幣升值，而要釘住匯率，就只好不斷地與外匯市場的作手反向操作─ 「買外幣賣台幣」，遂造就了國內市場貨幣供給的增加。央行若想同時穩定匯率與利率，唯一的辦法，就是不讓外匯市場自由運作，阻絕外匯入侵。因此，匯率、利率與匯市自由，三者之間不可能同時兼顧，是之謂「不可能三角」。

陳?憂心利率過低之弊，當然是言之成理。利率低到一％的水準，金融業形同一灘死水，以利差存活之業者幾無牟利空間，金融主管當局當然心有所憂。但彭淮南堅持台幣釘住美元，以致於台幣相對於世界貨幣有所低估，也不能說必然有錯。穩定的匯率對進出口影響極大，而彭總裁若基於貿易穩定考量堅持其匯率政策，也是可以接受的觀點。

既然學理上有所謂不可能三角，則關心利率者與關心匯率者有意見衝突，幾乎是必然的。自去年金融海嘯後，全世界財經環境仍然不穩定，冰島與希臘命在旦夕，華爾街股災也有風聲鶴唳之憂，全世界熱錢飄移迅速，而外匯進出自由的台灣，只是全球熱錢移轉的一個中繼點而已。在這個波動劇烈的背景之下，行政院財經閣員之間不可能在匯率與利率政策上辯出個一清二白的絕對結果，只可能妥協出一個彼此都能接受的折衷方案。明白這折衷妥協的必然性，我們就不免對行政院有所批評了。

雖然金管會與央行都是獨立機關，雖然匯率、利率的政策事涉相當專業，但無論如何，各部會都是行政院的下屬機關，都受行政院長與副院長的節制，沒有道理放任兩位閣員不在院內溝通，卻在院外各自放話開火。吳敦義自己不是財經背景，但不是有位號稱財經專業的副院長嗎？就算副院長即將出征新北市而無心院內戰事，不是還有財經政務委員可充協調嗎？就算政務委員忙著處理ＥＣＦＡ輿情回應等瑣事，院長麾下不也有頗受信賴的秘書長，可以折衝部會爭端嗎？怎麼會央行與金管會叫陣了這麼久，行政院卻出奇的安靜，完全沒有反應呢？

吳敦義院長強調庶民經濟，卻對央行與金管會之間的駁火放任不管。我們研判，可能是因為匯率與利率對一般人民影響有限，兩個單位鬥嘴尚不致引起民怨。對此，我們則持相當不同的看法。行政院長與副院長理應為將軍之才，不受「兵科」所限，更不能以專業為由，合理化自己對特定領域的淺漠。好的將軍必須要對各個專業兵科多多用功，無論如何要理出個「入門」的頭緒。不專業只能做為認真研習的趨力，不能成為放任不管的藉口。

此外，院長任令部屬之間互相批評，也有損團隊威信，既不利於以後其他財經政策的共識凝聚，也讓人民減低對內閣的信任。無論如何，只有大人不在家，小孩之間才會吵架鬥嘴。院長明明坐在首席高座，堂下卻是吵擾不休，人民不禁會問：院裡有大人在嗎？