| Abstract | Taiwan is a success story in the annals of economic development. In the path of economic
evolution, Taiwan has been through an initial import substitution phase, which began in the
early 1950s, to an external-orientation phase, which started in the early 1960s and lasted
through the 1970s, to a technology-sensitive phase, which unfolded since 1980. As the
economy evolves, priorities change, and so does the focus of policy. As the focus changes,
policies or combinations of policies adopted during a particular phase are abandoned and
replaced by a new combination during the successive phase.
The objectives of this research are· to examine the changes of foreign exchange policy in the
course of economic development in Taiwan, with the intention of providing an overview of the
policy evolution and analyzing its impacts on the economy, and to recommend the foreign
exchange policy needed for future economic development in Taiwan.
This overview indicates Taiwan's development has moved consistently in the direction of a
market economy. Alternatively and synonymously, one can view this as a process of the
gradual depoliticization of the economic system, as the gradual withdrawal of political forces
from the system that regulates economic activities. In other words, the major trend in Taiwan's
foreign exchange policy has been toward greater and greater freedom in the market as the
economy has maintained a steady and sustained growth to strengthen its confidence. When the
economy gains experience and confidence, the emphasis shifts to support; too much
supervision and involvement from the government can be counterproductive. As the economy
continues to advance, the government, like a good manager, will have only minimal
involvement in day-to-day activities, instead of monitoring and setting overall objectives.
The foreign exchange policy experience of Taiwan, by nearly all account, has been highly
successful. Taiwan economy improved steadily with persistent export surpluses that began to
emerge after 1982, which resulted in the accumulation of very large foreign exchange reserves
(the third largest in the world by the end of 1997). Liberalization accelerates as the economy
matured and pressure mounted form all directions. A movement toward full liberalization and
internationalization should be adopted to ensure sustained prosperity in the future. |