Taiwan should play a more active role in “getting ready” to facilitate full currency convertibility between the New Taiwan dollar and the yuan, Nicholas Kwan (關家明), regional head of research in Asia for Standard Chartered Bank Ltd, told a media briefing yesterday.
“Along with enhanced cross-strait trade, it is of mutual interest for both Taiwan and China to prepare for a currency clearance mechanism to launch full convertibility between the NT dollar and the Renminbi [yuan],” the Hong Kong-based economist said.
Taiwan began limited exchanges between the NT dollar and the Chinese yuan in June last year in the wake of increased Chinese tourists visiting Taiwan even though the two sides had yet to work out clearing and settlement measures. Under the ceiling of 20,000 yuan per transaction, the exchange services are available at most banks, hotels and department stores.
Taiwan and China agreed to establish a clearing system in April when Taiwan’s Straits Exchange Foundation and its Chinese counterpart, the Association for Relations Across the Taiwan Strait, signed a financial cooperation agreement following their third round of negotiations.
Tony Phoo (符銘財), the bank’s Taipei-based chief economist, said converting yuan directly into local currency, without having to convert into US dollars or Hong Kong dollars, was feasible and efficient in terms of transaction costs.
However, Phoo said it may not be of great urgency in the short term as the nation’s China-bound capital outflows still outweigh the inflows of Chinese capital.
The convertibility issue will be addressed when Taiwan opens itself to Chinese capital and narrows the gap in capital exchanges, he said.
Both economists agreed that Taiwan enjoys economic advantages from its warming businesses ties with China — one of the fastest-growing economies in the world, with an estimated 8 percent GDP growth this year.
Against this background, Kwan urged Taiwan to first enact the “contents” of the financial memorandum of understanding and the cross-strait economic cooperation framework agreement (ECFA), rather than focus on the timing for signing the two deals.
News over last weekend that the government might delay the signing of an ECFA with China until next year triggered a more than 3 percent decline in local stocks on Monday.
On Tuesday, Minister of Economic Affairs Yiin Chii-ming (尹啟銘) said representatives from both sides of the Strait would begin negotiations on the ECFA in October after the ministry releases the results of a study of the proposed pact and its impact later this month.