When Japan takes over Taiwan, the main currency in circulation is a hard money called the Mexican Silver (Mexican dollar). In 1904 Taiwan bank notes are issued; to many Taiwanese, the circulation of paper money is like a currency revolution. The Bank of Taiwan establishes branch offices in Japan and throughout the region.
Currency relations between China and Taiwan are cut off in June, and the New Taiwan dollar is issued, exchanged at 1:40,000 old Taiwan dollars. This move isolates Taiwan from endless inflation in China and helps stabilize Taiwan's currency and economy.
In 1968 Taiwan invests $20 million in U.S. government securities and increases by $20 million its bank deposits in the United States. It also agrees to increase American holdings as its foreign exchange reserves grow.
A trade imbalance with the United States puts pressure on Taiwan to raise its currency rates. The exchange rate of the Taiwan yuan to the U.S. dollar rises, and foreign currency reserves increase rapidly, reaching US$76.748 billion in 1987, behind only Japan and Germany. In 1988 the exchange rate is freed from the Central Bank's control and is determined by the market.
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