The Ma government keeps looking for an end around Taiwan's conservative financial regulations, which have protected the island fairly well from the stupidity and criminality that goes on elsewhere. Financial integration is a key goal of putting the island into China's orbit. President Ma himself noted in his Double Ten Day speech last month that he hoped the "free economic zones", 1960s style development zones, would include financial services, effecting getting them out from under Central Bank and other regulation. He said...
In addition, the free economic pilot zones (FEPZs) have already entered the launch phase. The Executive Yuan has relaxed 12 regulations to dramatically streamline customs procedures applying to pilot zone firms when they outsource processing operations, so that new operating models based on smart logistics can be gradually established in these zones. The Shanghai Free Trade Zone officially opened recently, giving us yet another competitor. Therefore, we must step up efforts to open up our market. The Executive Yuan is actively deliberating on whether to allow other industrial activities in the FEPZs, such as the financial sector’s wealth and asset management services. This is the right direction. We should expand the scope of liberalization for both domestic and international financial and economic activities.Not so fast, however, says the Central Bank. I seldom source from WantWant since it is so pro-China, but in this case I'll make an exception. This WantWant piece's fuming at the Central Bank shows how closely Ma's policies align with those of China.
The central bank said that if the Taiwan dollar were to be traded in the free trade zone, then Taiwan would have opened its gates wide to the world, which it is not prepared to allow.It is hard to see how a system where all the financial transactions but those taking place in a certain zone are heavily regulated can ever function effectively. You can imagine that it would be laundering transactions from all over the world. Further, local banks would simply move transactions into the zone via paperwork to escape regulation. It would also make a nifty conduit by which PRC state banks could gut Taiwanese money policy simply by moving large sums in and out. The Central Bank's opposition is the correct move.
But the dilemma also lies in the fact that Taiwan has long isolated itself from the world's financial markets and has become a desert for foreign capital. If the government is currently planning a free trade zone that is no different than the system currently in place, the project is doomed to failure.
The central bank has cited the effects of the 1997 Asian financial crisis and the Lehman Brothers crisis in 2008 as reasons to lock the Taiwan dollar at home.
No doubt the memories of those financial disasters remain in Hong Kong and Singapore, but those two territories still consider it worthwhile to open their doors, judging the benefits to outweigh the potential risks.
Taiwan is urged to reconsider its policies regarding the international financial market and to take other countries in a similar position as examples. While other Asian financial heavyweights such as Hong Kong and Singapore compete to establish themselves as renminbi offshore financial centers, Taiwan talks the talk but remains petrified of taking the plunge.
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