Historical Sketch

The island of Taiwan belonged to China since the late 17th century, for most of the time as part of the mainland province of Fujian. In 1887, it was made a separate province. After the Chinese defeat in the First Sino-Japanese war it was ceded to Japan in 1895. With the Japanese surrender of August 1945, the Nationalist government of China took over and re-established the province of Taiwan. In late 1949, the Nationalists were defeated by the Communists everywhere in mainland China, and the government retreated to Taiwan. The government-in-exile of the Republic of China claims authority over the mainland provinces that form the People's Republic of China. De facto, China (Taiwan) is an independent state.

Monetary History Overview

In imperial China, a few provincial silver coins were issued by a mint that was supposedly located in mainland Fujian. After the cession of Taiwan to Japan in 1895, the introduction of Japanese accounting proved difficult since Japan was preparing the switchover to the gold standard in 1897, while mainland China was deeply rooted in the silver economy. In June 1899, the publicly owned Bank of Taiwan Ltd. began operations as commercial bank with issuance privege for paper money. The Taiwanese Yen was created as silver currency although nominally at par with the Japanese Yen. Large amounts of silver coins that had been withdrawn from circulation in Japan were then shipped to Taiwan. In mid-1904, the transition period was over, and the gold standard also applied to Taiwan, although silver kept its importance in the trade with China. The local paper money was not fully convertible into metropolitan currency. The local banknotes continued to be issued during the interim between the Japanese retreat in August and the Chinese takeover in November 1945. The Nationalist government then closed the Bank of Taiwan Ltd. and stopped currency issuance, since the intention was to introduce the mainland currency. Due to the ongoing Chinese civil war this proved not feasible so that the Bank of Taiwan was re-established as state-owned commercial bank in May 1946, with a mandate to issue the provincial currency. The 1st Taiwanese Dollar replaced the Japanese currency on par which was demonetized until September of the year. The Dollar quickly lost value, but the depreciation was not comparable with the mainland hyperinflation. The short-lived currency reforms of August 1948 and July 1949, which the nationalist central government carried out in the mainland areas under its control, were not applied to Taiwan. Instead, a separate reform was carried out in June 1949. Four zeros were cut, and the 2nd Taiwanese (New) Dollar became the new provincial currency. It was pegged to the US Dollar and thus remained decoupled from the decaying mainland currency. In January 1950, the government resolved to adopt the Chinese Silver Dollar (1949) as currency for the Republic of China, while the Taiwanese Dollar (1949) retained the status as provincial currency and unit of account. No Silver Dollar notes were ever issued in Taiwan, and its legal tender status was finally abolished in 1992. In 1961, the Taiwan branch of the Bank of China, established 1935 on the mainland, was reconstituted as central bank for the government on Taiwan. The Bank of Taiwan remained the commissary issuer for the time being. In July 2000, the Central Bank finally took over, and the Bank of Taiwan got transformed in a pure commercial bank. The Taiwanese Dollar that was initially created as a provincial currency had finally become the de facto national currency for the Republic of China under the government-in-exile. In the 1950, the US Dollar peg could no longer be maintained, and the official exchange rate became inoperative and replaced by effective rates. The Dollar lost around 90% of its value within a decade until the peg got re-instated in 1961. The Taiwanese currency had remained stable for decades, also after the floating of the exchange rate in 1978, until the 1997 South East Asian currency crisis. The 20% decline could partly be recovered in the following years.

China joined the International Monetary Fund (IMF) on 27.12.1945 as a founding member. The Nationalist Republic of China on Taiwan kept the seat after the end of the Chinese civil war until 17.04.1980, when the People's Republic China took over.

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