Unleashing a Tiger: Financial Deregulation in Taiwan

Abstract

ARTICLES UNLEASHING A TIGER: FINANCIAL DEREGULATION IN TAIWAN Michael S. Bennettt I. INTRODUCTION For a nation of only twenty million people, the accumulation of wealth in the Republic of China ( Taiwan ) is remarkable. At roughly US$90 billion and rising, its foreign exchange reserves are the largest in the world.' Deposits in the official banking system at the beginning of 1992 exceeded US$300 billion. 2 Almost another US$300 billion of liquid savings is believed to exist outside of the official banking system, with a significant amount of such nonbank savings consisting of private gold holdings. 3 Even excluding depos- its outside the official banking system, the roughly US$15,000 of official deposits per person in Taiwan is almost half of the amount of per capita deposits in Japan, whose per capita GNP is three times greater than that of Taiwan. As the statistics recited above suggest, Taiwan has very suc- cessfully engaged in the mercantilist enterprise of hoarding capital. The island is bursting with liquidity as a result. However, Taiwan's financial system has not yet proven capable of unleashing the is- t Associate, O'Melveny & Myers (New York); J.D., Columbia University School of Law. I gratefully acknowledge the invaluable assistance of Harold B. Dichtes, J.D. expected 1994, Harvard Law School. 1. Sitting on Its Billions, ECONOMIST, Mar. 14, 1992, at 97. For an interesting discussion of Taiwan's foreign exchange reserves see Nigel Holloway, Taiwan Too Re- served, FAR E. ECON. REV., Jan. 31, 1991, at 48. 2. Sitting on Its Billions, supra note 1, at 97. 3. See, e.g., Jane K. Winn, Banking and Finance in Taiwan: The Prospects for Internationalization in the 1990s, 25 INT'L LAW. 907 (1991); A Dangerous Game in Taipei, ECONOMIST, Sept. 9, 1989, at 97. Unofficial depository institutions in Taiwan include underground investment houses, neighborhood loan circles, rotating credit clubs, and companies that take deposits from their employees. 4. Sitting on Its Billions, supra note 1, at 97. Taiwan's per capita GNP is approxi- mately US$8000.