With rising demand for the Chinese yuan in expectation of its appreciation, the central bank said yesterday that the establishment of a cross-strait currency settlement mechanism next month would resolve a shortage of yuan notes in Taiwan.
Central bank Deputy Governor George Chou (周阿定) made the remarks during a question-and-answer session at the legislature, saying that the currency settlement mechanism would come before the government’s proposed trade pact with China is signed.
Chou said the central bank has been discussing the matter with the Chinese government for a long time and is waiting for China’s response.
“Negotiations have reached the final stage,” he said.
Legislators yesterday discussed a severe shortage in the supply of Chinese yuan bills, with several urging the government to establish a currency settlement mechanism with China as soon as possible to resolve the situation.
While the public can now purchase up to 20,000 yuan (US$3,000) at banks that offer currency exchange services, recent expectations of an increase in the value of the Chinese currency have led to a dramatic increase in demand.
Chou said that since the introduction of yuan-New Taiwan dollar exchange services in 2008, more than 6.9 billion yuan have been bought, although that was still 2.3 billion yuan lower than the actual demand.
The shortage in supply of the yuan underscored the need for a cross-strait currency settlement mechanism, he said
“Although China is the second-largest economy in the world, the yuan is still a controlled currency and it is not yet fully open to the financial market,” Chuo said, adding that none of the world’s central banks own Chinese yuan notes.
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