Taiwan will have to overcome hurdles that may slow yuan liquidity in its attempt to become an offshore yuan trading hub, but the nation will have no difficulty building up yuan deposits, Standard Chartered Bank said yesterday.
“It takes both a large yuan pool and robust yuan flows to build another offshore yuan market after Hong Kong,” Tony Phoo (符銘財), a Taipei-based economist at the British banking group, told a media briefing.
Taiwan may see rapid accumulation of yuan deposits once it and China work out currency settlement rules, thanks to accelerating cross-strait investment, trade and people flows, said Phoo, whose bank is seeking to top its peers in yuan research.
Yuan deposits are expected to account for 15 percent of total deposits in Taiwan in five years and 30 percent in 10 years, Phoo said, adding that this suggests at least NT$2.5 trillion yuan (US$398.79 billion) in terms of value.
The economist attributed his optimism to the fact that cross-strait trade volume exceeded US$127 billion last year, making China Taiwan’s biggest trade partner and largest source of trade surplus.
China remains the preferred overseas investment destination for Taiwanese investors, with between 50,000 and 100,000 Taiwanese enterprises currently operating there, he said.
Travel also helped boost yuan trading, with the number of Chinese visitors reaching a record 1.78 million last year, overtaking Japan as the biggest source of tourists, Phoo said. He added that the number is expected to rise significantly in the future.
When a large pool of yuan is available, the next challenge will be the ease with which the currency can be absorbed and the government can help facilitate this process by allowing as much legal flexibility as possible, Phoo said.
Minimal control over wealth management and investment products is critical to yuan trading and so are favorable taxation terms, he said.
“Taiwan cannot compete with Hong Kong, although it is in a better positioned to benefit from the yuan’s internationalization, if the government keeps a tight rein,” he said.
Authorities on both sides of the Taiwan Strait have yet to unveil further details after inking a memorandum of understanding over currency settlement in late August.
Standard Chartered forecast that more cross-border trade will be settled in yuan, which presently accounts for 12 percent of the country’s trade at 60 billion yuan, with the potential to hit 30 percent in the future, Phoo said.
The yuan’s ranking as a world payments currency rose from 20th in January to 14th in August, the economist said.
Yuan-linked businesses are seen as key earnings drivers for Taiwan’s overly competitive banking sector.