Between 1945 and 1952, the Taiwan dollar experienced a period of turbulence with two major reforms of the currency, creating the New Taiwan Dollar, as well as efforts to reduce fluctuations in the value of the old currency , the jinyuanquan. Under Chief Executive Yi Chen, who extended the specialization of monetary and financial policies. Ostensibly this was to prevent the inflation of the mainland fiat currency from impacting Taiwan, but Chen also had an agenda of developing his much-desired economic nationalism. The resulting restriction of the central financial authorities, however, led to difficulties in adjusting the exchange rate of Taiwan dollar and the mainland fiat currency and made inflation difficult to prevent. The Bank of Taiwan experienced a shortage in their money supplies, and cross-strait business efforts were stymied. This was further exacerbated by the Bank of Taiwan issuing currency in the military and political sectors, leading the Old Taiwan Dollar to experience inflation similar to that of the mainland’s fiat currency, while the circulation of currency through the political sector implicitly led to the exploitation of Taiwan’s resources.
After the dismissal of Chen, new appointee Tao-Ming Wei used his good relations with the authorities to loosen restrictions on those authorities, leading to adjustments of the exchange rate between the Old Taiwan Dollar and the mainland currency. While these adjustments proved to be inadequate, a breakwater was nonetheless established, but was later destroyed when the jinyuanquan was set to a fixed exchange rate. While Wei was able to solve the exchange rate issue, Taiwan continued to experience crippling inflation because the currency issuing methods of the Bank of Taiwan remained unchanged.
During the tenure of Wei’s successor as governor Cheng Chen, the Nationalist government lost their battle on the mainland, and under the leadership of then finance minister C.K. Yen, the move to the New Taiwan Dollar helped Taiwan escape from the economic orbit of China, ushering in a new Nationalist focus on Taiwan-based economic development. During the shift to the New Taiwan Dollar, the Taiwan Province Production Industry Management Commission was established, exercising total control over the public sector in Taiwan and helping rectify the exploitation of Taiwan’s resources by the public sector. However, Chen and Yen were unable to solve the problem of the massive debt accumulated by the public sector and the costly retreat of Nationalist forces to Taiwan, and so despite the move to the New Taiwan Dollar, Taiwan’s inflation problems continued unabated.
Under K.C. Wu and Hsien-Chun Jen, a series of financial reforms were put in place to improve the fiscal deficit, with the result that the issuing amount of currency had been under control. With the outbreak of the Korean War, US troops and USAID were stationed in Taiwan, creating greater security in Taiwan, providing a solution to the debt problem, resulting in the stabilization of the New Taiwan Dollar, and leading to the final cessation of hyperinflation in 1952.