A nation's currency not only demonstrates the economic strength of the state, it also reflects its political and social development. In many ways, the history of the New Taiwan Dollar is the story of the Republic of China over the past sixty years.
On July 3 this year, hundreds of currency collectors lined up at six appointed banks to exchange their old NT$1,000 (US$32) bills for mint-fresh replacements just issued by the Central Bank of China (CBC). Most of them had been waiting overnight for the new notes, which for the first time since the Kuomintang (KMT) government took over Taiwan in 1949 were printed with the name of the CBC rather than the Bank of Taiwan on the face. What made them so special? The Bank of Taiwan was and is technically just another "local" bank. The new NT$1,000 bills were the first fruits of a policy decision to print the island's currency at national level.
Unfortunately for those collectors, however, the eagerly awaited notes turned out to be less than impressive. None of them bore serial numbers beginning with the all-important AA prefix, highly prized because in the past it had always been reserved for the first printing of a bill series. But these AAs, it transpired, had been kept back by the bank for use as specimens. In the words of one CBC official, the new money was for circulation, not commemoration.
The revamped NT$1,000 bills were only the first installment in a longer story. The CBC is scheduled to introduce redesigned NT$500, $100, $200, and $2,000 bills at six-month intervals. The $200 and $2,000 denominations are new, and are being introduced to make daily cash transactions more convenient. Growing prosperity requires corresponding currency. "No one wants to carry around a thick stack of bills," says Wu Shaw-chii, director-general of the CBC's Issue Department. "We decided to print a NT$2,000 note because currently the highest dollar denomination [NT$1,000] is only 0.24 percent of the island's per capita gross domestic product (GDP). This is lower than all of the new Asian economies except South Korea." (Taiwan's GDP has increased around six times and its per capita income has risen five times since the launch of the existing $500 and $1,000 notes in 1980.)
But improvements to the currency are not confined to considerations of convenience. Taiwan's dollar bills are entering the twenty-first century with more security features than ever before, including complex watermarks, see-through registers (pictures printed on both sides that match when held up to light), latent images, microprints, and color-changing and copy-proof inks. An embossed strip helps visually challenged people identify the notes, and even automatic teller machines will have an easier time differentiating between them, since each denomination is 5mm. shorter than the next most valuable.
The bills also look better. Bank notes bearing the CBC's name are the culmination of many changes Taiwan's financial sector has seen in the last two decades, and various economic, political, and social overtones have been mined to give the new currency a more modern feel. For example, young students feature on the new $1,000 note, Little League baseball players will be represented on the $500 bill, and satellite dishes on the $2,000 bill.
Mikado pheasant and Formosan sika deer, both endemic species, will also appear on the backs of some new bills, along with distinctive local landmarks like Mt. Yushan. Certain things, however, will not change, or at least not at once: Images of the ROC's founding father Sun Yat-sen and of former President Chiang Kai-shek will distinguish the NT$100 and $200 notes respectively, with Yangming Mountain's majestic Chungshan Hall and the Presidential Office Building on the reverse.
Hsieh Der-tzon, a professor at the Department of Economics at National Taiwan University (NTU), points out that most overseas bankers and traders consider the New Taiwan Dollar to be the ROC's national currency, just like the residents of Taiwan. It isn't the national currency? Actually, no. "But very few people know that the official currency of the ROC is the silver-dollar-based huan," Hsieh says, adding as an afterthought, "So why not abolish it?" There seems to be no good reason for retaining it--legal fines used to be imposed in huan, but this has not been the case for some years--apart from the fact that there is still an official exchange rate between the huan and the New Taiwan dollar, approximately one huan to NT$3, although it is not actually possible to buy or sell huan.
Wu Shaw-chii believes that paper currency doubles as an ambassador of the country that issues it. Old-fashioned bank notes signify a society that has fallen behind the times. "By issuing new bills, we're responding to the demands of globalization while at the same time preserving the traditional image of our national currency," he says. Hsieh Der-tzon goes along with that. "Nations the world over put historical figures or cultural icons on their money," he points out. "The United States uses images of George Washington and Abraham Lincoln, and other countries use historical events and representations of local customs. Diversity is the hall mark of a modern society."
The development of Taiwan's currency this century is a long and complex story. New Taiwan dollars, as they are known today, date back to the island's return to Chinese jurisdiction in 1945, but to understand how and why they evolved it is necessary to revert to the origins of the Chinese Republic.
Even after the ROC was founded in 1912, China could scarcely be counted a unified country, because of the large number of warlords marauding around the mainland. There were at least two "national" governments at that time, each with its own capital. One was situated in Beijing and dominated by warlords. From 1917 onward, the other, led by Sun Yat-sen, was based in Guangzhou. It stayed there until Sun's death in 1925, then moved to Nanjing in 1927. Each set of authorities had to print currency in order to pay its army, the mainstay of political power. But during the early years of the Republic, people also used silver, officially circulated coins, and privately printed notes issued by banks--all leftovers from the Ching Dynasty. Silver and copper dollars and government-backed paper issued by some larger banks were also in circulation.
As early as 1912, foreign advisers were being enlisted to help set up currency systems in both capitals. The advice they gave differed in several respects, but both factions agreed on two things: There should be a central bank, and the right to print currency should be confined to a single institution. The KMT government later gave effect to those two recommendations, founding the Central Bank of China in 1927. The CBC started to issue its own notes in the following year, although at that time local notes and foreign bills were still in circulation.
A major problem soon emerged. Foreign debt was payable in gold, but taxes on imports (an important source of income) were levied in silver. Gold was expensive on the international market, whereas the price of silver was steadily declining. The ROC could not break even.
On May 1, 1930, the CBC began to issue new bank notes known as "custom gold units." In 1933, however, it gave up the unequal struggle and acceded to the internationally recognized silver standard, following a precedent set by other major powers in the wake of the Great Depression. But a rise in the price of silver in 1934 caused the government to change its policy yet again, this time electing to base its legal tender on foreign currency reserves. All silver in private hands had to be sold to the government. Notes issued by three major banks--the Bank of China, the Central Bank of China, and Chiao Tung Bank--were deemed legal tender.
The new system worked for a time, but the eight-year Sino-Japanese War (1937-1945) again caused a severe depreciation in the value of the currency. The need for reconstruction, coupled with a shortage of goods and materials, resulted in the failure of legal tender. In August 1948 the government therefore started to print gold yuan notes, but this attempt at reform proved abortive. The currency became a mix of silver dollars and exchange certificates.
Even so, inflation remained rife. "If you felt that prices at the first store were too steep, you'd find those next door even higher," a former Shanghai resident recalls. "But by the time you got back to the first one, the price would have risen again. So when we went food shopping, we used to tote around a bag full of legal tender, notes, whatever."
If the mainland was suffering from a currency headache, Taiwan could fairly be said to have a migraine. "When the government took Taiwan back, Japanese currency was in circulation on the island in the form of the Taiwanese yen, but the authorities didn't know how to set the exchange rate, so they decided to introduce the Taiwan Dollar," says NTU's Hsieh Der-tzon. This new local currency was first issued on May 22, 1946, and initially it was linked to the mainland's legal tender and gold yuan notes.
Before long, however, that turned out to have been a bad idea. "From late Ching to 1949, China was always at war," Hsieh points out. "Thus it was hard for the government to maintain even basic comprehensive household registration, not to mention effective methods of tax collection. All it could do was print money in order to fight the civil war." At the same time, the KMT was busy hollowing out Taiwan's economy in an attempt to continue the war against the Communists. Inevitably, the mainland legal tender that backed the Taiwanese currency depreciated, while raging hyperinflation struck at the Taiwan Dollar directly until even tually it became nearly worthless.
During the fifty-year Japanese occupation, the authorities compiled much accurate census data, and the figures tell their own tale with regard to inflation. Tallies show that the total face value of Taiwan dollars in issue at the end of 1946 was 5.3 billion, but in 1947 that climbed to 17.1 billion, rising again in 1948 to 142 billion. The following year, the KMT arrived in Taiwan, where it found a dire situation. Nobody wanted the Taiwan dollar notes. Farmers were refusing to sell their produce.
In an attempt to turn things around, on June 15, 1949, the government introduced today's New Taiwan Dollar, setting the exchange rate between the old and the new currency at 40,000 to 1. At the same time, the currency's backing was changed. "The old Taiwan Dollar was linked to the mainland's legal tender, which had no concrete foundation, but the new note was backed by the 800,000-900,000 taels of gold brought into Taiwan by the CBC," Hsieh says. (A tael weighed approximately 1.5 ounces.) Strict controls were imposed on the number of New Taiwan dollars that could be printed, and that helped maintain their value.
The KMT administration was still recognized internationally as the government of all China. Taiwan, in law a province of the mainland, could therefore technically issue only local currency, although in practice the New Taiwan Dollar was treated as the ROC's state currency. This gave rise to some strange anomalies. Certain offshore islands were and are controlled by the ROC, but under the Constitution they technically remain the territory of Fujian Province. Bills circulating on these islands had to bear special marks. Currency notes earmarked for use on Kinmen and Matsu, and the islets of Paichuan and Tachen, either showed the name of the island or were stamped with the rubric "for circulation in Kinmen only," for example. Residents of Taiwan proper who visited those places had to exchange their money at banks when they got there, and vice versa.
CBC's Wu Shaw-chii says that this was for reasons of national security, because the offshore islands housed extremely large and important military bases that were off limits to most civilians, just as residents of those offshore islands were afforded few opportunities to set foot on Taiwan. "As the Cold War era faded into history, exchanges between Taiwan and the offshore islands became more frequent," he says. "So, starting September 1989, bills with localized place names were gradually phased out."
Many critics in the past have accused the CBC of being too authoritarian and of imposing unnecessarily restrictive and arbitrary controls, but its performance during the 1997 Asian financial crisis was impeccable. "A healthy economic base kept Taiwan isolated from the negative influences that beset the region at that time," says Hsieh Der-tzon. "The weak soon toppled over once the big foreign players got involved, but stronger nations just teetered a little bit."
The ROC government also played a part in keeping the currency stable. "The fluctuations in the old Taiwan Dollar were largely caused by a state budget deficit that went back years," Hsieh says. "All the money was being spent on battles. There were no buyers for government paper, so it all ended up with the CBC. That was equivalent to just printing more and more money." After the ROC government moved to Taiwan, however, it acquired conservative spending habits. "The government auditor's reports showed a surplus for many years, and the change to deficit financing is only a recent phenomenon."
Financially, Taiwan remains in pretty good shape. In 1980, with the establishment of the Hsinchu Science-based Industrial Park, it embarked on a process of liberalization and internationalization that continues to this day. As the island became more export-oriented, the result was a sharp increase in the trade surplus, which led to a rapid accrual of foreign exchange and an equally fast appreciation of the New Taiwan Dollar against its US counterpart. Globalization, coupled with Taiwan's imminent entry into the World Trade Organization, will oblige the CBC to open Taiwan's financial markets still further, to allow for the free flow of capital. All in all, it is an encouraging picture.
Collectors may bemoan the absence of snob-value AA prefixes, but for the majority of Taiwan's citizens, the appearance of colorful, well-designed, and solidly backed bank notes is a welcome reminder that their country's economy can stand comparison with most. So let's hear it for the island's new currency bills--worthy additions to the ranks of Taiwan's silent but evocative economic envoys.