The Central Bank of the Republic of China (Taiwan), known in English from 1924 to 2007 as the Central Bank of China, is the central bank of the Republic of China (Taiwan). Its legal and common name in Chinese is literally translated as the "Central Bank".

The central bank is administered under the Executive Yuan of the ROC government.

History

In 1923, Dr. Sun Yat-sen, National Father of the Republic of China, promoted the establishment of the Central Bank of China (the Bank) with the primary goal of financing national developments.

The bank was originally established in 1924 under Sun Yat-sen's administration in Guangzhou. Following the success of the Northern Expedition, the Central Bank took over the role of central bank for China from the Bank of China in 1928, with its headquarters in Shanghai.

The Bank was inaugurated in Canton in the following year. Since then the Bank developed with a vision to be in line with the modern concept of central banking. In December 1949, the Bank relocated with the government from Mainland China to Taipei, and in 1961, resumed its operations there.

On November 8, 1979, the newly revised Central Bank of China Act was promulgated. While the Bank has since been under the Executive Yuan (Cabinet), its independent role in making monetary policy has not been changed.

The Bank of Taiwan issued the New Taiwan dollar until 2000, when the Central Bank of China finally took over the task. In 2000 the English name of the Central Bank of China was renamed "Central Bank of the Republic of China (Taiwan)" along with a host of other renaming under the Chen Shui-bian administration of state-owned corporations with "China" in their name, such as the Chunghwa Post.

Organization

The Central Bank is the sole monetary policy-making and policy-executing entity in the Republic of China. Its organization structure is shown in the chart below. The decision-making body is composed of three parts, namely, the Board of Directors, the Board of Supervisors, and the Governor and Deputy Governors.

The Board of Directors

The board of Directors is the highest decision making body of the Bank. It consists of eleven to fifteen directors nominated by the Executive Yuan (Cabinet) and appointed by the President. Five to seven directors of the Board are designated as executive directors. According to the Central Bank of China Act, the Governor of the Central Bank, the Minister of Finance and the Minister of Economic Affairs are ex officer directors and executive directors. Directors, except for ex officer directors, are appointed for five-year terms and can be reappointed upon the expiration of their terms. The Board meets four times a year. Currently, the Board consists of fifteen members, of whom six are concurrently executive directors.

The Board of Supervisors

The Board of supervisors is authorized to examine the Bank's assets and liabilities and to audit its accounts. It consists of five to seven supervisors, and all of them are nominated by the Executive Yuan and appointed by the President. There are five supervisors at present. The Director General of the Directorate-General of Budget, Accounting and Statistics of the Executive Yuan is an ex officer supervisor. Except of ex officer one, Supervisors are appointed for three-year terms and may be reappointed upon the expiration of their terms.

Operations of the Bank

According to the Central Bank of China Act, the Bank's operational objectives include promoting financial stability, ensuring sound banking operations, maintaining the stable internal and external value of the currency and, within the scope of the above three objectives, fostering economic development.

In order to achieve its operational objectives, the Central Bank of China conducts the following operations:

• Monetary Management
  
  The Bank uses various policy instruments, including open market operations, discounts and temporary accommodations, required reserve ratios, re-deposits of financial institutions etc., to regulate financial conditions and to achieve monetary policy objectives.
• Treasury Agency Functions
  
  As the fiscal agency, the Bank handles receipts and disbursements of funds and properties for the central government and its agencies. The Bank also handles the issuance, redemption and interest payment of central government securities. Settlements of funds and securities arising from the above operations are facilitated by the CBC-Wire, which is the main system integrating the CIFS and the Central Government Securities Settlement System.
  
  With the introduction of the book-entry central government bond system in September 1997, the issuance, transfer, redemption and interest payment of the bonds are in the form of accounting entries on computer records. Since then, the bonds have no longer been issued tangibly. The book-entry Treasury bills system was also introduced in October, 2001.
• Currency Issuance
  
  In July 1961, the Bank resumed its operations in Taiwan and regained its right to issue currency. The Bank is responsible for designing, planning, producing bank notes and coins, and destroying old notes which are no longer fit to use. The Bank of Taiwan, a state owned commercial bank, is authorized to distribute notes and coins and sorts out returned notes.
• Clearing and Settlement Services
  
  The Bank is the major operator of the payments system in Taiwan, providing services for payments among banks. Payments, including those associated with central bank accommodation, inter bank loans, bill and bond transactions, are settled via the Central Bank of China Inter bank Funds Transfer System (CIFS).
  
  The Bank is also responsible for promoting the efficiency and security of the payments system, as well as supervising clearing houses regarding check clearing and settlements among the banks involved.
• Foreign Exchange Management
  
  To date, residents can freely hold and use foreign exchange export proceeds and also make foreign exchange import payments without restrictions. Only certain regulations imposed on remittances related to capital account transactions are retained for the purpose of financial stability.
  
  The NT dollar exchange rate is determined by market forces, which is in line with the policy of exchange rate liberalization. Only when the foreign exchange market is disrupted by seasonal or irregular factors will the Bank step in.
• Participation in International Organizations
  
  The Republic of China is currently a full member of the Asian Development Bank (ADB), the Central American Bank for Economic Integration (CABEI), and the Conference of Governors of South East Asian Central Banks (SEACEN).
  
  The Bank attends the annual meetings, provides training courses, and hosts conferences so as to strengthen financial cooperation and relations with other member countries. In addition, the Bank also plays an active role in the Inter-American Development Bank (IDB), the European Bank for Reconstruction and Development (EBRD), and the Bank for International Settlements (BIS), among other international financial organizations.
• Statistics and Research The Bank compiles data on financial statistics, flow of funds, and balance of payments, and publishes these statistics in the Financial Statistics Monthly, Flow of Funds Annual, and Balance of Payments Quarterly. The Bank's Annual Report and Quarterly Review are also published. The Bank's publications are sent to domestic and international institutions.
  
  The Bank's research covers a wide range of economic and financial subjects, such as financial market conditions, monetary aggregates reserve money, movements of interest rates and NT dollar exchange rates, balance of payments, flow of funds, as well as production activities, investments, and prices. The Bank also conducts studies on economic and financial conditions of major countries as well as impacts arising from innovations in global financial markets.
• Bank Examination
  
  Based on the Central Bank of China Act, the Bank also has the responsibility to examine the operations of all financial institutions under the operational objectives of promoting financial stability and guiding sound banking operations.
  
  With regard to financial institution examination, emphasis is placed on the following: understanding the consistency of their operations with respect to monetary policy, assessing their compliance with relevant regulations, reviewing their operational procedures, evaluating their systems of internal controls and the efficiency of their operations, and reviewing current regulations.

Foreign Exchange Regime

Prior to February 1979, management of foreign exchange in the Republic of China was characterized by a central clearing and settlement system. Following the establishment of the Taipei Foreign Exchange Market in February 1979, a flexible exchange rate system was formally implemented.

Since then, the NT dollar exchange rate has been determined by the market. However, when the market is disrupted by seasonal or irregular factors, the Bank will step in.

Financial Stability

Safeguarding financial stability is the common goal among central banks. The Central Bank of China Act stipulates that prompting financial stability is one of its legal objectives. Generally, price stability contributes to financial stability while financial stability is supplemented by price stability. Monetary policies are effective only when the financial systems are stable.

Since 1990s, there have been several financial crises that disturbed international financial market and damaged the global economy. To avoid the damages caused by financial instability, international organizations and many central banks are actively engaging in the establishment of financial stability assessment framework and systemically analyze and monitor the potential risks that may arise either within or outside the financial system.

The CBC stopped carrying out regular full-scope on-site examinations after the establishment of the FSC in July 2004. To further enhance its function of promoting financial stability, the CBC set up the Financial Stability Assessment Section in January 2006, which is subordinate to the Department of Financial Inspection.

The CBC compiles the financial soundness indicators based upon the Compilation Guides for FSIs issued by the IMF and builds up the financial stability assessment framework that is consistent with the nature of our financial system, with reference to the IMF, European Central Bank and other central banks’ macro-prudential analytically methodologies. Moreover, the CBC issued its first financial stability report in June 2008.

Useful links

Currency of Republic of China:

Taiwan dollar

List of Central Banks:

Central Banks

Official website of Central Bank of the Republic of China:

www.cbc.gov.tw

Ministry of Finance of the Republic of China:

www.mof.gov.tw