Taiwan's Finance and Banking

As introduced by the Yearbook of the Republic of China:

Bouncing back from a mild contraction the year before, Taiwan's economy began an export-driven recovery in 2002. As the world economy began to improve, Taiwan's exports gathered strength, and domestic demand increased slightly. For 2002 as a whole, real Gross Domestic Product (GDP) expanded 3.54 percent, while the general price level gently drifted downward, with the Consumer Price Index (CPI) decreasing 0.2 percent and the core CPI increasing only 0.69 percent.

With inflationary pressure lowered, the Central Bank of China (CBC) continued to keep monetary conditions accommodative throughout 2002 to provide more thrust for the economy. Continuing the cycle of discount rate cuts that began in December 2000, the CBC lowered the discount rate twice by a total of 50 basis points in 2002. To make the transmission mechanism of rate cuts more effective, the CBC urged banks to initiate adjustable rate mortgages and adopt the new flexible prime rate benchmark scheme. These structural changes were aimed at aligning banks' lending rates more closely with market rates, thereby lowering borrowing costs for the general public.

Primarily reflecting the weak demand for credit and a shift of funds from bank deposits to bond funds, the broad monetary aggregate M2 grew only at an annual rate of 3.55 percent in 2002. With respect to the foreign exchange market, the NT dollar exchange rate fluctuated against the US dollar in the course of 2002, and finished at 34.753 at year-end, a depreciation of 0.71 percent from the previous year-end. With foreign exchange reserves rising to US$161.7 billion by the end of 2002, external liquidity remained in good shape.

Taiwan is currently a full member of the Asian Development Bank (ADB), the Central American Bank for Economic Integration (CABEI), and the Conference of Governors of South East Asian Central Banks (SEACEN). Taiwan attends their annual meetings, provides training courses, and hosts conferences so as to strengthen cooperation and relations with other member countries. In addition, Taiwan also plays an active and extensive role in the Inter-American Development Bank (IDB), the European Bank for Reconstruction and Development (EBRD), and the Bank for International Settlements (BIS), among other international financial organizations.

Since 2001, the fiscal year for the government's budget has been matched to the calendar year, starting in January and ending in December. In this chapter, an average NT$/US$ exchange rate of 33.80 is used for 2001, and 34.76 for 2002.