Precautions needed to prevent financial blockade by banks
The government should take precautions to prevent a financial blockade by international banks and ensure that it has enough capital to purchase wartime necessities, the results of a tabletop exercise released yesterday showed.
The tabletop exercise examined the possibility of international banks facing “external pressure” to impose a “financial blockade” on Taiwan during wartime.
It was held last month by the Asia-Pacific Policy Research Association, Taiwan Center for Security Studies Association and other organizations.
Such a blockade could result in Taiwan’s foreign-exchange reserves being transferred out of those banks’ accounts, the report said.
To prevent this from happening, Taiwan could enter into agreements with countries that support it to establish mechanisms for drawing on its foreign reserves and ensure it could purchase wartime necessities, it said.
The government should also borrow from international capital markets during peacetime, and if the borrowing limit is reached, state-run banks and enterprises, and local governments should be allowed, under strict supervision, to issue national debt to qualified foreign international investors, the report said.
The central bank could also consult with the Financial Supervisory Commission to simulate scenarios on controlling Taiwan’s foreign-exchange reserves and stock exchange, as well as when to implement significant interest rate hikes, it said, adding that the results of such simulations should be presented to the president and the premier as a reference for policymaking.
Taiwan could make an arrangement with the Federal Reserve and the Bank of Japan to use foreign capital reserves during wartime, Chinese Culture University Institute of National Development and Mainland China adjunct professor Chen Chung-hsing (陳松興) said at a news conference yesterday on the report’s findings.
Such arrangements would not be free, so Taiwan might have to use some of its overseas assets as collateral, Chen said.
CRISIS MANAGEMENT
With this type of mechanism in place, Taiwan’s central bank would be able to reassure the public that it would have sufficient access to its foreign-exchange reserves during a crisis, he added.
The tabletop exercise places a special emphasis on crisis prevention over crisis management, and risk management over damage control, said Chinese Nationalist Party (KMT) Legislator Chen Yeong-kang (陳永康), a retired Navy admiral who organized the exercise.
The holistic exercise covers various fields, from financial to energy security and the continued functioning of industries during war, thereby helping the country develop resilience, the lawmaker said.