Chiang Kai-shek in Taiwan, II

The new currency, known as New Taiwan (NT) dollars, was backed 100 percent by reserves of gold, silver, and foreign exchange, with a ceiling of NT$200 million. The exchange rate was set at NT$5 to US$1, and the old currency, the Taiwan dollar, was called back at the ratio of 40,000 for NT$1. That meant inflation was 4 million percent in a mere four years.

The battle against inflation continued after Chiang's arrival in Taipei. By June 1950, the currency ceiling had been reached. The continued government deficit financing required raising the NT$200 million limit by NT$50 million. In February 1951, a power station project called for another limited issuance of NT$95 million. After that, there was no limit for note issuance. In the meantime, the wholesale price, with June 1949 as the base (100), surged up to 180 by the end of 1949 and rose to over 240 in the spring of 1950. A series of upward revisions of official exchange rates took place. By July 11, 1950 the rate had risen to NT$10.35 to US$1.

The foreign assets of the Bank of Taiwan had been exhausted by the spring of 1951. Inflation, however, was tamed. The battle was won in mid-1953. But what saved Taiwan was the Korean War, which broke out on June 25, 1950.

Before the war, on January 5, President Harry S. Truman issued a policy statement regarding Taiwan. He said:

"The United States has no predatory designs on Formosa or on any other Chinese territory. The United States has no desire to obtain special rights or privileges or to establish military bases on Formosa at this time. Nor does it have any intention of utilizing its armed forces to interfere in the present situation. The U.S. Government will not pursue a course which will lead to involvement in the civil conflict in China.

"Similarly, the U.S. Government will not provide military aid or advice to Chinese forces on Formosa. In the view of the U.S. Government, the resource on Formosa are adequate to enable them to obtain the items which they consider necessary for the defense of the island. The U.S. Government proposes to continue under existing legislative authority the present ECA (Economic Cooperation Administration) program of economic assistance."

On the same day, Dean Acheson, secretary of state, commented on the statement to press correspondents in the form of "extemporaneous remarks."

He explained the president's statement, while containing little that was new, had been prompted by the prevailing confusion abroad arising from the public discussion of the Formosa question in the United States. This discussion, he said, had aroused a great deal of speculation, which if allowed to continue would be prejudicial to American interests. In answer to a question concerning the fact that the president's disclaimer of an intent to establish military bases in Formosa had been qualified by the phrase "at this time," Acheson said it was a "recognition of the fact that in the unlikely and unhappy event that our forces might be attacked in the Far East the United States must be completely free to take whatever action in whatever area is necessary for its own security."