The opening of trading in China's yuan in Taiwan will hinge on the establishment of a bilateral currency exchange and settlement system between the two sides of the Taiwan Strait, a senior official said yesterday.
Perng Fai-nan (彭淮南), governor of Taiwan's central bank, made the remarks while fielding questions at a meeting of the Legislative Yuan's Finance Committee. Two lawmakers asked Perng when the government will be able to kick off trading in China's currency for the convenience of businesspeople with interests in China.
Perng said a crucial step lies with the legislature's passage of a draft package of revisions to the Statute Governing the Relations between the People of the Taiwan Area and the Mainland Area (台灣地區與大陸地區人民關係條例). The revision package is still pending legislative approval.
Once the bill clears the legislature, the Mainland Affairs Council can begin preparations for negotiating with China's central bank -- the People's Bank of China -- for the establishment of a cross-strait currency exchange and settlement mechanism to set the stage for yuan trading, Perng said.
"The establishment of a cross-strait currency settlement system is imperative for the opening of renminbi [yuan] trading in Taiwan. Otherwise, local banks may face serious financial losses in the event that the People's Bank of China refuses to allow local banks to convert their yuan holdings into US dollars," Perng said.
During the meeting, many legislators expressed concerns about the possible impact of a looming war in Iraq.
Quoting a study by the Chung-Hua Institution for Economic Research, a private think tank, Perng said if the war ends quickly, the effect would be minimal.
"But if the war last for more than six weeks, it would certainly have an adverse impact on Taiwan's economy," he said.
Perng said the central bank has been closely monitoring developments in the global financial markets and will act to stabilize the currency should a US-Iraq war cause significant swings.
"If the situation in Iraq triggers drastic fluctuations in the Taipei foreign exchange market, the central bank will definitely intervene to maintain dynamic stability in the New Taiwan dollar's exchange rate," Perng said.
Asked by PFP Legislator Christina Liu (
Noting that the central bank lowered the rate in 14 cuts between December 2000 and November 2002, Liu claimed that the loose monetary policy has caused depreciation of local currency, left local banks awash with idle cash, and even sparked a business crisis in the insurance industry and an exodus of foreign capital.
Perng said Liu's claims were not wholly correct.
"It's not fair to blame the loose monetary policy for certain changes in domestic financial and economic situations," Perng said. "As a matter of fact, the policy is a boon to the local economy because low interest rates help companies to raise capital and boost their willingness to invest."
"I don't think that our economy would have been better off if we had adopted a tighter monetary policy," he said.
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