Compliance in Progress Summary
The most recent comprehensive account of Taiwan’s performance against monetary policy transparency standards is a report published by Oxford Analytica in 2006. It delivers an overall rating of "compliance in progress." The Central Bank of China (CBC) is an independent body with the sole authority to formulate monetary policy for the country. It maintains a website on which it disseminates a wide range of information relating to monetary policy, its formulation, and its implementation in both regular and occasional publications and statistical form. Internal audits are conducted by the CBC's Board of Supervisors, while external audits are carried out by the Board of Audits. Taiwan does not use independent auditors from the private sector and has no immediate plans to do so. Reforms to the Central Bank of China Act have been stalled due to political considerations. Although not a member of the International Monetary Fund (IMF), the CBC nonetheless broadly conforms to the dissemination practices required by the IMF's Special Data Dissemination Standard.
General Overview
The most recent comprehensive analysis of Taiwan’s performance against monetary policy transparency standards was performed Oxford Analytica (OA) in 2006. OA delivers an overall rating of "compliance in progress" (p. 386) for Taiwan. The report finds that the Central Bank of China (CBC) is operationally independent and transparent. The report particularly notes that the CBC has recently raised the possibility of discussing inflation targeting with other countries, although it has not yet announced its intent to introduce it any time soon. At present, political considerations have stalled any legislative amendments to the Central Bank of China Act. However, the CBC created a Financial Stability Assessment Section in 2006 that employed International Monetary Fund (IMF) Compilation Guidelines to develop financial soundness indicators, given that financial stability is a high government priority. According to the CBC website, the central bank issued its first financial stability report in June 2008. OA also reports improvements in financial institution reporting regulations put forth by the CBC and the Financial Supervisory Commission (FSC) that create greater consistency among disclosure requirements and are better aligned with international standards. The CBC disseminates monetary policy information by means of a variety of publications. External audits are carried out by the Ministry of Audit (MoA) and the Director General of Budget, Accounting, and Statistics (DGBAS). Taiwan is not a member of the IMF and therefore does not subscribe to either the Special Data Dissemination Standard (SDDS) or the less strict General Data Dissemination System (GDDS). Nonetheless, OA states that the CBC is "broadly compliant" (p. 386) with SDDS specifications for statistics on the financial and external sectors.
The CBC website discloses that the creation of the central bank was first proposed in 1923 by Dr. Sun Yat Sen, and the bank came into being in the city of Canton in the following year. It moved to Taipei in 1949, and in 1961 officially resumed operations. In 1979 the original 1935 Central Bank of China Act was amended. It is the sole authority of monetary policy in the country. The website discloses that Taiwan holds full memberships in the Asian Development Bank, the Central American Bank for Economic Integration, and the Conference of Governors of South East Asian Central Banks. It participates in international meetings, training courses, and conferences in the interest of strengthening its financial relations on the international stage. It is also an active participant in the Inter-American Development Bank, the European Bank for Reconstruction and Development, and the Bank for International Settlements, among other international financial organizations.
The Principles
ENClarity of roles, responsibilities and objectives of central banks.
The 2006 OA monetary transparency report rates this principle as "enacted" (p. 387) for Taiwan. The Central Bank of China Act of 1935, and last comprehensively amended in 1979 sets forth the CBC's objectives and institutional framework. When it was passed, and even at the time of its amendment, modern transparency standards had yet to be adopted. "As a result," according to OA, "the terminology it uses does not explicitly address questions such as independence" (p. 387). The CBC has been pressing for legal reform that would improve the bank's independence and professionalism, particularly through a revision of the terms and tenures served by members of the CBC board of directors. At present, the CBC's independence is governed by the 2004 Basic Organization Code of the Central Government. Reform of the CBC Act was being debated in the legislature in late 2004, according to the OA report.
Article 2 of the CBC Act establishes four primary objectives of the CBC: promotion of financial stability, guidance of sound banking operations, maintenance of currency stability both internally and externally, and fostering economic development. The CBC website reiterates these four objectives, and lists the various operations it performs in order to achieve them, including: monetary management, treasury agency functions, currency issuance, clearing and settlement services, foreign exchange management, and bank examination, among others. In turn, detailed descriptions of how each of these operations are carried out are also provided on the CBC website. According to the CBC Act, the executive holds jurisdiction over the CBC, which functions as a government ministry. OA reports that the CBC claims its policy-making is completely independent of the government. Its monetary and foreign exchange policy responsibilities are distinct from those of the FSC, which has responsibility for the financial system. Article 9 of the CBC Act provides that the central bank governor's office is not subject to change with a change of the president or the cabinet. His term and the terms of the deputy governors are legally stipulated at five years. OA adds that "the CBC governor may not be removed from his position because of policy choices" (p. 387), and notes that "in practice, no governor has ever been fired" (p. 388). However, the Act does not explicitly provide the terms by which the CBC governor may be dismissed.
OA reports a strict separation between monetary policy formulation and implementation, a CBC function, and the management of government debt, which is the role of the Ministry of Finance (MoF). The Central Government Development Bonds and Loans Act prohibits the CBC from buying government bonds in the primary market. The MoF has a formal contract with the CBC that permits the extension of overdrafts to the central government drawn on the MoF's cash account. OA reports, however, that "this financing facility has never been used" (p. 388). The CBC Act also establishes the central bank's role with the Treasury, whereby it manages the Treasury accounts and implements Treasury operations. OA adds that it "serves central government agencies in other financial matters, such as cash accounts, bills, and securities (including receipts and payments), safekeeping and transfers, and the protection of other asset documents," although the OA report adds that "it may delegate these operations to other financial institutions" (pp. 388-389). The law permits the CBC to buy and sell government-issued or guaranteed bonds, bank bonds, and bank bills on the open market. It may also issue savings and short-term bonds and CDs for the purpose of monetary regulation. The OA report adds that, by law, "the central bank should receive and maintain reserves against the deposits and other types of liabilities of other banks. At its discretion, the CBC may modify deposit reserve ratios within various limits for a range of deposit accounts and other types of liabilities" (p. 389).
CPOpen process for formulating and reporting monetary policy decisions.
According to OA, Taiwan achieves a rating of "compliance in progress" (p. 390) for this principle. The CBC's underlying policy obligation is its legal mandate to maintain price stability and it employs a range of instruments to achieve its policy goals. To maintain stability, according to OA, "the central bank uses the M2 monetary aggregate as its intermediate target variable and monitors the movements of a wide spectrum of economic and financial variables" (p. 390). While there has been some recent discussion about transitioning from monetary targeting to inflation targeting, OA states that the CBC is not prepared to do so any time soon. OA adds that the CBC follows a managed floating exchange rate policy, with the CBC intervening at times of market disruption and excessive exchange-rate volatility. Monetary tools include open-market operations, a discount window policy for commercial banks, selective credit controls, reserve requirements, and financial institution re-deposits, all of which are disclosed by the CBC on its website. The CBC also communicates about its monetary activities by means of press releases and press conferences.
OA discloses that the CBC's Board of Directors has the lead role in making monetary policy decisions. The 11 to 15 board members are nominated by the head of government (premier) and appointed by the chief of state (president). The larger board selects seven of its members to serve as the executive board. Serving as directors on the board are the CBC governor and the ministers of finance and economic affairs. Board members include at least one representative drawn from each of the agricultural, industrial, and commercial sectors. The responsibilities of the board are set forth in the CBC Act and include the examination of policies relating to monetary, credit, and foreign exchange issues, as well as any adjustments to the CBC's capital; approval of the CBC's operations; inspection of the CBC's budget and fiscal reporting; developing and approving the CBC's regulatory framework; overseeing CBC structure; and handling the CBC's internal managerial issues. The OA report notes that proposed changes to the CBC Law include a reduction in the size of the board and making board membership a full-time commitment as well as a restructuring of the term and tenure conditions, so that members serve staggered terms. It is prohibited for any one political party to occupy more than one-third of all board seats, and board members are banned from political activity during their period of service. The board is scheduled to meet quarterly, and the dates of the meetings are announced in advance, but there is no advance release of the meeting agendas. The conduct of board meetings is governed by the CBC's Regulations Governing Meetings of the Board of Directors. The CBC board publicly disseminates information regarding the major conclusions reached at its meetings, but OA notes that the reforms of the CBC Act stalled as of the time of the writing of the report, contain a provision requiring the release of board meeting minutes. Another provision of the proposed reform is expected to create a nine-member, part-time Monetary Consulting Committee populated by academic and business experts who will serve the board of directors in an advisory capacity.
According to OA, and confirmed by the CBC website, the central bank produces a variety periodicals that deal with monetary policy, available on its website. Monthly publications are the Financial Statistics Monthly and the Banking Rules and Regulations. Published quarterly are the Central Bank of China Quarterly, the Condition and Performance of Domestic Banks, and the Balance of Payments Quarterly. In addition, the CBC publishes several annual publications: the Annual Report, the Financial Institutions' Major Business Statistics, the Flow of Funds in Taiwan District RoC (Republic of China), and the Survey of the Financial Conditions of Private and Public Enterprises. In developing its policies, the CBC engages in outside consultations with experts from the academic and private sectors, but OA suggests that these consultations do not go so far as to seek monetary policy consensus. The CBC also conducts outreach efforts to private industry "in order to explain monetary policy and to get a better understanding of how its policies affect the private sector" (p. 391). In a year-end press conference, the CBC discloses the targets it has set for the coming year.
CPPublic availability of information on monetary policy.
According to the 2006 OA report on monetary policy transparency, Taiwan has achieved a rating of "compliance in progress" (p. 394) for this principle. A nonmember of the IMF, Taiwan nonetheless broadly complies with the specifications of the IMF's SDDS and posts its metadata on the CBC website using both a national format and the format of the International Financial Statistics. It also publishes an advance release calendar through the CBC's Financial Statistics Division. OA reports that "the Financial Statistics Monthly contains aggregate monetary data and a summary of the CBC's assets and Liabilities” (p. 394). The Annual Report contains the CBC's full balance sheets. Some detail is lacking in the CBC's publications, such as certain information relating to international reserves, but OA states that this information can be recovered by "a comparison between figures of the [Financial Statistics Monthly] and the balance of payments statistics" (p. 394). OA adds that the CBC is required by its governing Act to provide support to banks in need of help, but notes that this has rarely been required in recent years. The CBC disseminates monetary policy information in both Chinese and English, and its website includes contact information for those who wish to enquire further regarding issues within the central bank's mandate. The CBC website discloses that, in addition to its scheduled publications, it also makes available a variety of occasional papers and offers access to the text of its press releases and the speeches of its governor and board.
CPAccountability and assurances of integrity by the central bank.
The 2006 OA report gives Taiwan a rating of "compliance in progress" (p. 395) for this principle. The report notes that the CBC is accountable to the legislature, to which it must report twice yearly regarding the conduct of its monetary policy. In addition, the CBC's governor must meet with the legislature annually to discuss the CBC budget, and may be called upon for additional appearances should the legislature deem it necessary. In such cases, however, a deputy may be sent to appear in the governor's place. The OA report notes that the CBC's internal accounting department produces the bank's financial statement, and the Annual Report provides public disclosure of the bank's income and expenses. The CBC's Board of Supervisors conducts an audit of the bank's accounts and approves its annual reports to make certain that they comply with the provisions of Taiwan's Law on Fiscal Reporting. External audits are carried out by the Ministry of Audit and the DGBAS. The CBC does not call upon independent auditors from the private sector, and OA reports that there are no plans to do so. The Code of Conduct for Civil Servants provides the ethical framework, covering issues such as information confidentiality and conflicts of interest. The Civil Servants Act covers the rights and responsibilities of CBC staff and officers and includes protection from dismissal except where there is cause. Sanctions applied for violations range from assigning demerits to discharge from service, although the latter occurs rarely according to OA. The body in charge of discipline is the Commission of Disciplinary Sanctions of Functionaries, which the OA report describes as "a quasi-judicial commission designed specifically for this purpose" (p. 395).
