Exporting hyperinflation: The long arm of Chiang Kai-shek

Abstract

As mainland China's inflationary spiral accelerated in 1947–1949 there was a massive outflow of funds to the island of Taiwan. The exporting of China's hyperinflation was augmented by the fixed, overvalued, exchange rate for the mainland Chinese currency against the Taiwanese currency that was adopted in August 1948. Empirical tests offer support for the importance of the 1948 monetary policy reform and suggest a substantial role for capital inflows and excess money growth in mainland China in accounting for Taiwan's own hyperinflation. We find no independent role for Taiwanese money growth in the inflation process.