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Untitled Document
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Taiwan |
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Taiwan joined the International Bank and the IMF in Washington on 12/18/1956, but was expelled from both in April 1980. The Executive Yuan establishes policies involving trade and foreing exchange regulations which are implemented by the Central Bank, the Ministry of Finance and the Ministry of Economic Affairs. The Foreing Exchange Department of the Central Bank of China exercises the management of foreign exchange. There is a minimum reserve of 100% in gold, silver, or foreing exchange against the first NT$200 million of banknotes. Above this amount no fixed ratio applies. (WCY 1990-1993, p.529)
During the past four decades, Taiwan has achieved rapid economic growth. Consistent with its economic development status, its financial system has been gradually transformed from a controlled system into a liberalized one.
In the early years, faced with a trade deficit and a shortage of foreign exchange, the government adopted foreign exchange control and an exchange rate system fixed to the U.S. dollar.
In 1978, the government abandoned the fixed foreign exchange rate system and adopted managed foreign exchange. Under the new system, the foreign exchange rate was determined not by the Central Bank but by the Center of Foreign Exchange, which was composed of five large Taiwanese Banks (namely, the Bank of Taiwan, the Chinese International Commercial Bank, the First Commercial Bank, Hua-Nan Commercial Bank, and Chang-Hua Commercial Bank). A range of 2.25% around the previous day’s rate was set to prevent violent fluctuations.
During the 1980s Taiwan’s trade surplus increased substantially, and foreign exchange was no longer a scare resource. The government thus replaced the managed foreign exchange rate with a floating rate in 1989. Ever since then, the Central Bank has been able to use open-market operations (that is, by control the amount of foreign exchange release) to adjust for imbalances in the foreign exchange rate. In the 1990s, two important events caused the New Taiwan Dollar to depreciate. The first was the 1995 military exercises of mainland China conducted in the waters around Taiwan, which caused US$7 billion flee from Taiwan. The second was the 1997 Asian financial crisis. During both events, the government chose to stabilize the market by releasing more foreign exchange to increase the supply. Unfortunately, the result did not meet expectations. (Yu, 1999)
Major Sources of Reference Include:
1. World Currency Yearbook. (WCY)
2. IMF Annual Report on Exchange Arrangement and Exchange Restriction. (IMF)
3. Yu, Tzong-shian (1999): “The evolution of commercial banking and financial markets in Taiwan”, Journal of Asian Economics 10, pages 291-307.
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Date
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Changes
to the exchange rate regime
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New Taiwan Dollar per U.S. Dollar
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| 1 June 1961 | A basic Official Rate of NT$40.00 per U.S. Dollar was established. (WCY 1990-1993, p.529) | 40.000 | | 1 June 1961 | A basic Official Rate of NT$40.00 per U.S. Dollar was established. (WCY 1990-1993, p.529) | 40.000 | | 1 October 1963 | The then-prevailing foreign exchange certificate system was abolished. (WCY 1990-1993, p.529) | | | 15 August 1971 | Following the floating of the U.S. Dollar, Taiwan maintained its currency's exchange rate relationship to the American unit unchanged, thus affecting a de facto devaluation. (WCY 1990-1993, p.529) | | | 20 December 1971 | In the wake of the de jure devaluation of the Greenback, the gold content of the New Taiwan Dollar was reduced 7.89%, paralleling the American Dollar's cut. (WCY 1990-1993, p.529) | 40.000 | | 16 February 1973 | Following the devaluation of the U.S. Dollar, the New Taiwan Dollar's gold content was reduced 5.3%, thus devaluing the Official Rate. (WCY 1990-1993, p.529) | 38.000 | | 10 July 1975 | The amount of foreign currency that residents leaving the Republic of China could take out was increased from US$400 to US$600. (IMF 1076, p.127) | | | 2 August 1975 | The exchange allowance for any approved type of travel was increased from US$1,000 a person a trip to US$1,200 a person a trip. The business travel allowance for per diem and living expenses was increased from US$1,200 a month to US$1,500 a month.
The exchange allowance for students abroad, for the second to fifth academic years, was increased from US$3,600 to US$4,000 a year.
The remittance facility for "petty outward remittances" was increased from US$200 to US$250 a person every three months. (WCY 1990-1993, p.529) | | | 17 October 1975 | The exchange allocation for the payment of export commissions was reduced from 5 per cent to 3 per cent of the selling price. (WCY 1990-1993, p.529) | | | 1 January 1977 | The limit on outward foreing exchange transfers that residents may make for any purpose other than import payment was set at the equivalent of US$500 for every 6 month period; previously, the limit was the equivalent of US$250 for every quarter. (IMF 1978, p.104) | | | 20 July 1977 | The limit on foreign currencies which residents leaving the Republic of China were allowed to take with them was raised from the equivalent of US$600 to US$1,000. (IMF 1978, p.105) | | | 19 April 1978 | The allowance for education abroad was raised from US$4,000 to US$6,000 a year from the second to the sixth academic year. (IMF 1979, p.106) | | | 16 June 1978 | Overseas travel allowances were raised. The allowance for personal expenses was raised from US$1,200 to US$1,500 a trip while for business travel the allowance for living expenses was raised from US$1,500 to US$2,200 a month for up to three months. (IMF 1979, p.106) | | | 1 July 1978 | The limit on outward transfers that might be made without formality for all payments other than import payments was raised from the equivalent of US$1,000 to US$1,500 annually. (IMF 1979, p.106) | | | 12 July 1978 | The link of the Taiwan currency to the U.S. Dollar was abandoned. An Effective Rate was created for the unit with the New Taiwan Dollar adjusted upward to NT$36 per Greenback, and revised periodically against the Japanese Yen, the South Korean Won and the Unitedt States Dollar. (WCY 1990-1993, p.529) (The listed rate since then is the Effective Rate) | 36.000 | | 11 August 1978 | The Central Bank announced that the U.S. Dollar might be accepted in forward exchanged dealings in addition to the deustsche mark, the pound sterling, and the Swiss franc. (IMF 1979, p.106) | | | 6 September 1978 | The allowance for residents leaving the Republic of China was raised from NT$2,000 in domestic banknotes to NT$8,000. The allowance for import of domestic banknotes ws also raised to NT$8,000. (IMF 1979, p.106) | | | 31 December 1978 | | 36.000 | | 1 February 1979 | The Effective Rate of the New Taiwan Dollar was placed on a controlled, floating basis with its exchange value determined against a basket of currencies which included the U.S. Dollar, Japanese Yen, Deutsche Mark, Hong Kong Dollar, Singapore Dollar, U.K. Pound Sterling, and French Franc. (WCY 1990-1993, p.529) | | | 31 December 1979 | | 36.030 | | April 1980 | Taiwan was expelled from the International Bank and the IMF. (WCY 1990-1993, p.532) | | | 31 December 1980 | | 36.010 | | 31 December 1981 | | 37.840 | | 31 December 1982 | | 39.910 | | 31 December 1983 | | 40.270 | | 31 December 1984 | | 39.470 | | 31 December 1985 | | 39.850 | | 31 December 1986 | | 35.500 | | 31 December 1987 | | 28.550 | | 31 December 1988 | | 28.170 | | 1989 | Later in the year, an interbank foreing exchange market was established. (WCY 1990-1993, p.529) | | | 3 April 1989 | The New Taiwan Dollar was set free to float according to supply and demand. (WCY 1988-1989, p.530). The 2.25% trading range for the New Taiwan Dollar was removed, the Effective Rate abolished and an Interbank Rate established to be determined by supply and demand in the exchange market. However, domestic banks could only buy up to US$50 million daily, while local foreign banks were limited to no more the US$20 million a day. (WCY 1990-1993, p.529) (The listed rate since then is the Interbank Rate) | | | 31 December 1989 | | 26.170 | | 31 December 1990 | | 27.120 | | 31 December 1991 | | 25.750 | | 31 December 1993 | | 26.680 |
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