TAIPEITaiwan and China formally established a direct yuan-clearing system between them on Friday, marking another step in China's internationalization of its currency and increasing economic ties between them.
Taiwan will become the third place with such a clearing arrangement with China, after Hong Kong and Macau, and further its goal of becoming an offshore yuan trading hub.
Taiwan's and China's central banks signed an agreement that will permit direct settlement of yuan payments between China and Taiwan, without first converting their currencies into U.S. dollars, which is the current practice.
The pact will also allow the Taipei branch of Bank of China Ltd., 601988.SH -1.00% the clearing bank for yuan in Taiwan, to accept deposits from local banks with excess yuan liquidity.
Individuals in Taiwan will be permitted to convert up to 20,000 yuan (US$3,186) and transfer up to 80,000 yuan to China a day, as Beijing continues to keep a tight grip on its capital account. Taiwanese banks and institutions are also allowed to clear their yuan directly with any Chinese bank.
Taiwanese banks and exporters have said they welcomed a direct clearing system because it is likely to result in increased trade across the Taiwan Strait and greater use of yuan on the island. But some political analysts have said that Beijing, which claims sovereignty over Taiwan, is dishing out economic benefits and integrating both economies to accomplish its goal.
China buys around 40% of Taiwan's exports, and major Taiwanese companies have long had factories in China due to the country's lower labor costs and huge domestic market. Taiwan had a monthly trade surplus with China of US$6.69 billion in December.
Economists believe trade-related demand for yuan will create a growing pool of the Chinese currency in Taiwan, while the prospect of a strengthening yuan will also attract retail investment interest.
ANZ Greater China Chief Economist Li-Gang Liu said in a recent report that the clearing arrangement will likely result in yuan deposits in Taiwan rising to 100 billion yuan by the end of the year, nearly a five-fold increase from 21.5 billion yuan as of November.
"Treasurers of many Taiwan manufacturers find that a convenient way to manage their overall renminbi positions," Mr. Liu said. "The recent appreciation of the yuan will only increase the currency's attractiveness."
A senior Taipei-based banker at a European bank, who asked not to be named, said the lack of yuan-denominated investment products in Taiwan will likely limit the growth of the yuan pool in the near future.
"You need to have a strong pipeline of yuan products to attract funds to stay here. Otherwise they will just go to Hong Kong where financial infrastructure and product range are more developed," the banker said.
Taiwan's central bank, the Central Bank of the Republic of China (Taiwan), has acknowledged this problem. Last week, it met with local banks, urging them to speed up the development of yuan-denominated investment products.
On Friday, the central bank said it is in talks with the People's Bank of China about granting Qualified Foreign Institutional Investor licenses to onshore Taiwanese financial institutions, hoping to add a venue and increase flexibility for local lenders in their yuan-product offering.
QFII grants a quota to non-Chinese financial institutions for investing in domestic shares and bonds in China.
The pact signed Friday complements a framework agreement signed by the two central banks in August.
Taiwan's central bank said it expects some local banks to start taking yuan deposits before by Feb. 8, with actual clearing with Bank of China starting as early as later that month.
Source
Sweet!
Taiwan will become the third place with such a clearing arrangement with China, after Hong Kong and Macau, and further its goal of becoming an offshore yuan trading hub.
Taiwan's and China's central banks signed an agreement that will permit direct settlement of yuan payments between China and Taiwan, without first converting their currencies into U.S. dollars, which is the current practice.
The pact will also allow the Taipei branch of Bank of China Ltd., 601988.SH -1.00% the clearing bank for yuan in Taiwan, to accept deposits from local banks with excess yuan liquidity.
Individuals in Taiwan will be permitted to convert up to 20,000 yuan (US$3,186) and transfer up to 80,000 yuan to China a day, as Beijing continues to keep a tight grip on its capital account. Taiwanese banks and institutions are also allowed to clear their yuan directly with any Chinese bank.
Taiwanese banks and exporters have said they welcomed a direct clearing system because it is likely to result in increased trade across the Taiwan Strait and greater use of yuan on the island. But some political analysts have said that Beijing, which claims sovereignty over Taiwan, is dishing out economic benefits and integrating both economies to accomplish its goal.
China buys around 40% of Taiwan's exports, and major Taiwanese companies have long had factories in China due to the country's lower labor costs and huge domestic market. Taiwan had a monthly trade surplus with China of US$6.69 billion in December.
Economists believe trade-related demand for yuan will create a growing pool of the Chinese currency in Taiwan, while the prospect of a strengthening yuan will also attract retail investment interest.
ANZ Greater China Chief Economist Li-Gang Liu said in a recent report that the clearing arrangement will likely result in yuan deposits in Taiwan rising to 100 billion yuan by the end of the year, nearly a five-fold increase from 21.5 billion yuan as of November.
"Treasurers of many Taiwan manufacturers find that a convenient way to manage their overall renminbi positions," Mr. Liu said. "The recent appreciation of the yuan will only increase the currency's attractiveness."
A senior Taipei-based banker at a European bank, who asked not to be named, said the lack of yuan-denominated investment products in Taiwan will likely limit the growth of the yuan pool in the near future.
"You need to have a strong pipeline of yuan products to attract funds to stay here. Otherwise they will just go to Hong Kong where financial infrastructure and product range are more developed," the banker said.
Taiwan's central bank, the Central Bank of the Republic of China (Taiwan), has acknowledged this problem. Last week, it met with local banks, urging them to speed up the development of yuan-denominated investment products.
On Friday, the central bank said it is in talks with the People's Bank of China about granting Qualified Foreign Institutional Investor licenses to onshore Taiwanese financial institutions, hoping to add a venue and increase flexibility for local lenders in their yuan-product offering.
QFII grants a quota to non-Chinese financial institutions for investing in domestic shares and bonds in China.
The pact signed Friday complements a framework agreement signed by the two central banks in August.
Taiwan's central bank said it expects some local banks to start taking yuan deposits before by Feb. 8, with actual clearing with Bank of China starting as early as later that month.
Source
Sweet!
