Since 1989, when the banking law was revised in order to promote liberalisation and internationalisation of Taiwan’s financial system, the focus of the government has been on turning Taipei into a regional financial centre. Several factors stimulated this ambition. Taiwan’s continuously growing economic strength (by the end of 1992 Taiwan’s foreign reserves had grown to US$82 billion and the per capital GNP was US$10,202) was one major factor. At a more psychological level, the newly emerged desire to forge an internationally acknowledged national identity, separated from the issue of its relationship to the Chinese mainland, also worked as a catalyst to strengthen this ambition. Moreover, the increasing coalescence of the global economic system into three regional groups (North America, West Europe and East Asia) has also reinforced this vision.
With an understanding of this ambition and the distinctive geopolitical location of Taiwan in the Asia-Pacific region, this chapter adopts a historical approach to illustrate the dynamism of post-1980 Taiwanese financial liberalisation. First, it attempts to give a brief description of Taiwan’s financial structure. Then it illuminates the various factors in the 1980s which drove the government in Taiwan towards financial deregulation. The third section focuses on the key policies implemented by the government to accelerate the process of financial liberalisation and internationalisation. Last, the specific effect of the post-1980 financial deregulation, i.e., massive Taiwanese capital outflow and its domestic and external consequences, will be discussed.
The foundation of the financial infrastructure of Taiwan was laid down in the 1940s and 1950s, and was expanded in the 1960s and 1970s. Several new financial institutions were established, including the Overseas Chinese Bank (OCB) in 1961, the City Bank of Taipei (CBT) in 1969 and the United World Chinese Commercial Bank (UWCCB) in 1975. Though the 1975 New