Daily conversion limits will ease selling pressures on the New Taiwan dollar in the foreseeable future after Taiwanese are allowed to own yuan deposits and buy yuan-based investments, Australia and New Zealand Banking Group (ANZ) said yesterday in a report.
The report came after the central bank promulgated rules for yuan operations for domestic banking units (DBU), services that are currently limited to their offshore banking units’ corporate customers.
“It is hard to estimate how strong the selling pressures on the local currency will be after the rules take effect” ahead of the Lunar New Year next month, with several polls showing Taiwan’s corporate and individual investors have a strong appetite for expanding yuan positions given the low yield of the local currency, ANZ said.
However, the daily conversion limits will impede flows at the retail level, ANZ said.
The central bank caps the daily conversion limit for individuals at 20,000 yuan (US$3,214) and remittances by Taiwan residents at 80,000 yuan a day.
Corporate and institutional entities have already stocked up yuan holdings on a regional basis, said ANZ, whose researchers recently paid a visit to Taiwanese firms and banks.
Massive conversion at the corporate level is also unlikely because the US dollar will remain the major trade currency in which Taiwanese manufacturers deal with their US and European buyers, ANZ said.
The spillover effect on other currencies would be modest, ANZ forecast, as the public generally sees the yuan as a substitute for high-yielding currencies such as the Australian dollar.
Steve Chuang (莊懷德), senior vice president of wealth management at HSBC Taiwan, said people could include yuan in their foreign currency portfolios — along with the US dollar and the Australian dollar — to take advantage of the yuan’s potential appreciation.