Political Institutions and Central Bank Autonomy in Taiwan

Abstract

Extant studies of the political economy of post-1949 Taiwan have credited the powerful and autonomous Central Bank of China (CBC) for exerting shaping influence over the trajectory of financial and industrial developments. While considerable research has been done on the origins and political sources of central bank autonomy under authoritarian rule, virtually no systematic efforts have been made to explore how the CBC has been able to retain its policy-making independence in the democratic era. This article attempts to fill in this significant analytical gap and to explain how the institutional status of the central bank has changed over the past two decades. It argues that the ability of the CBC to sustain its autonomy has derived from crucial political and institutional variables rather than from the independent causal weight of central bank laws. These variables—the policy alliance of the banking community, the institutional endowment of the macro-economic bureaucracy and the broad structure of interests and power within the KMT—have constituted the primary determinants of changes in the behaviour of central bankers in the transition to democratic rule.