The new Taiwan dollar (symbol: NT$; code: TWD)—often referred to simply as the Taiwan dollar—is the official Taiwanese currency. And here’s a (linguistic) quirk about Taiwan’s legal tender. It is technically a dollar-denominated currency like the USD. But why, in Mandarin, are Taiwanese prices typically quoted in yuan, like the Chinese RMB?
Well, back in the 19th century, the most common “trade dollars” in the Pacific were the Spanish and Mexican silver dollars. And…
The Chinese called these many different silver dollars yuan, meaning “round things,” and that became the name of the standard currency in China and modern Taiwan. The association between yuan and dollar in Taiwan has been so close that the two words are used interchangeably. The Japanese adopted the Chinese name but reduced it from yuan to yen in 1871.The History of Money (1997)
by US anthropologist Jack Weatherford
So while the Chinese and Japanese may distinguish the yuan/yen from the dollar, despite related origins, it’s all basically the same for the Taiwanese. This is also why the symbol for both the Chinese yuan and the Japanese yen is ¥ (as in CN¥ and JP¥, respectively) while the symbol for the Taiwan dollar, like the USD, is $ (as in NT$ or TW$).
Before the Dollar: Taiwanese Yen and the Bank of Taiwan
We explored the precursors to those silver dollars in an earlier story, Bolivian Silver and Nagasaki Cash. Those, alongside Chinese cash, circulated in Taiwan until 1895. But as the Japanese arrived to colonize Taiwan at the close of the 19th century, the Taiwanese monetary scene became more
boring bland standardized.
Japan founded, in 1895, the Bank of Taiwan to function as the colony’s central bank and monetary authority. The imperial government in Tokyo directed the Bank to introduce the Taiwanese yen, pegged one-to-one to the Japanese yen. This helped to standardize the currency of Japan’s empire and phase out earlier currencies in circulation among newly acquired territories.
The Taiwanese yen—the banknotes of which are officially called the Taiwan ginkō-ken (台灣銀行券), literally the “Bank of Taiwan banknote”—was replaced in 1946, one year after the incoming Chinese Nationalist government took control of Taiwan from Japan at WWII’s end. The new government introduced the first Taiwan dollar—that is, the old Taiwan dollar.
While the new government brought with it its own central bank from China, the Bank of Taiwan continued to function as an agent of the actual central bank. It continued to be responsible for currency issuance until as recently as 2000. Today, the Bank of Taiwan no longer performs central-bank functions like conducting monetary policy or issuing currency. Instead, it has transitioned toward commercial and retail banking, serving ordinary Taiwanese businesses and savers alike.
The Taiwan Dollar: Out With the Old, In With the New
Old Taiwan Dollar
The reign of the old Taiwan dollar (symbol: TW$), however, would prove to be quite brief. The Taiwanese economy, which had been stable under Japanese rule, was in shambles after WWII.
Conflicts between the Taiwanese population and their new Chinese Nationalist rulers, government corruption, the raging civil war in China and the immediate postwar struggles all contributed to hyperinflation. Bigger and bigger denominations of the old dollar had to be printed.
Within four years (1946–1949), the old Taiwan dollar became worthless. When the Chinese Civil War ended, the Nationalist government relocated to Taiwan, severing ties with China, and introduced a new currency. That new Taiwan dollar is still the official currency of Taiwan.
New Taiwan Dollar
In 1949, the Bank of Taiwan began taking the old Taiwan dollar out of circulation. Taiwanese citizens could swap their old currency for the new dollar. The exchange rate, however, was set at a heartbreaking one to 40,000.
For every old TW$40,000 in currency turned in to the Bank, the exchanger received NT$1 in return. The postwar economic condition in Taiwan and hyperinflation had all but wiped out the old Taiwan dollar’s purchasing power.
As the Taiwanese economy regained its footing in the 1950s and then accelerated in the ’80s and ’90s, the new currency and inflation rate stabilized. Between 1986 and 2020, according to IMF data, the Taiwanese year-over-year inflation rate never exceeded 4.5%. Annual inflation throughout the period mostly fluctuated around 1.5%; right where central bankers wanted it.
As the world once again grapples with the spectre of high inflation—some of the highest rates since the Oil Shocks of the 1970s and ’80s—the new Taiwan dollar has (so far) remained comparatively stable.