It is a particular privilege and honor to be invited to give the inaugural Sam-Chung Hsieh memorial lecture. Dr. Hsieh had a distinguished career as an academic and policymaker in Taiwan, which culminated, fittingly, in his service as Governor of the Central Bank. Earlier in his public career, Dr. Hsieh had played a pivotal role in Taiwan’s early economic successes. Under his guidance, the economy became one of the four original “Asian Tigers”, using open markets and export-led growth as the foundation for rapid economic development. Later, as Governor, he had to steer the Taiwanese economy through the challenges of political isolation and periodic bouts of global financial turmoil.
I first met Sam Hsieh nearly two decades ago, when he was a regular visitor to BIS Annual General Meetings. At that time, if you didn’t already know that Taiwan had the largest foreign exchange reserves in the world, he would make sure you were not in ignorance for long. Those were the days when $100 billion was real money. Nowadays, of course, self respecting policy makers use trillions as the preferred unit of account. Such is progress.
In the early 1990s, however, Taiwan undoubtedly commanded attention for its reserve levels. Some people wondered whether this was a wise use of scarce financial resources. But Governor Hsieh knew that such a reserve would enable Taiwan to maintain confidence in its currency in an uncertain economic and political climate. The economy’s financial strength also enabled it to be a major investor in the mainland economy, and so to contribute to the remarkable growth story of greater China.
I shall have more to say about the advantages and drawbacks of a policy of reserve accumulation later in this lecture. Before coming to that, however, I want to review the scale and scope of the present crisis, and the responses that are called for to restore confidence and facilitate a return to economic growth. Then I want to say something about the “exit strategy”. How can central banks and governments extricate themselves from the extraordinary measures now being adopted, and return to a normal functioning of the economy and financial system? Finally, I will consider how to build a more resilient financial system, more resistant to external disturbances, and less subject to internally-generated volatility.
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