Central bank Governor Perng Fai-nan (彭淮南) said yesterday the nation’s foreign exchange reserve may include yuan-based assets as soon as next year, following the establishment of a cross-strait currency swap deal.
The central bank will also do its best to make Taiwan a second offshore clearance center for the Chinese currency, Perng added.
“I hope [Taiwan’s] foreign exchange reserve will include assets valued by yuan in a year,” Perng said during a question-and-answer session at the legislature’s Finance Committee.
Perng said Taiwan had begun preliminary talks with China on the establishment of a cross-strait currency swap mechanism as a prerequisite for Taiwan to add yuan-based assets to foreign exchange reserves.
The cross-strait currency swap deal is an arrangement in which the two sides would exchange specific amounts of different currencies, and a series of interest payments on the initial cash flows would be exchanged.
The two sides may begin negotiations in the near future, following the memorandum of understanding (MOU) on a cross-strait currency clearance mechanism with the People’s Bank of China taking effect in two months, Perng said.
Taiwan signed the currency settlement agreement with China on Aug. 31, with the deal scheduled to take effect within 60 days of the signing.
Unlike in Hong Kong, Perng said, the currency clearance mechanism between Taiwan and China is a bilateral agreement, which means overseas banks are also eligible to participate in the settlement platform between the two currencies.
Taiwan has some advantages for the yuan clearance business, Perng said.
Taiwan aims to become a second yuan offshore center, the central bank governor added.
Inflation and other economic uncertainties were also topics raised by lawmakers during the question-and-answer session yesterday.
Perng said he was cautiously optimistic about the nation’s economy, expecting annual growth of Taiwan’s GDP in the second half to reach at least 3 percent.
On consumer prices, Perng said a recent downward trend in global crude oil and commodity prices may reduce inflationary pressure.
As to the “hot money” expected to enter in Taiwan’s market after the US Federal Reserve’s third round of quantitative easing, the central bank was monitoring 20 foreign institutional investors involved in frequent capital outflow and inflow exchanges, Perng said in a central bank report submitted to the legislature.
The volume of capital inflows and outflows by the 20 foreign institutional investors accounted for about 35 percent of the total capital movement from about 6,000 foreign investors, according to the report.