Chinese currency deposits in Taiwan are likely to surge to 250 billion yuan (US$41.18 billion) by the end of next year, from the 123.2 billion yuan last month, as regulators study further measures to accelerate the development of the offshore market, foreign institutes forecast.
The trend would fall in line with the currency’s fast-growing popularity in other offshore yuan markets like Hong Kong and Singapore.
“Taiwanese have shown a strong interest in holding yuan assets, attracted by higher interest rates and currency appreciation,” Standard Chartered Bank’s Taipei-based economist Tony Phoo (符銘財) said.
Yuan deposits now account for 17 percent of overall foreign currency deposits, up from 6 percent in February when Taiwan allowed domestic banking units to conduct yuan business, Phoo said.
In Taiwan, the central bank limits the conversion to 20,000 yuan per person per day.
Phoo expects the pace of accumulation to pick up further if the daily limit is removed next year.
The Taiwanese government is negotiating with China to establish more channels for the flow of yuan back to its onshore market by expanding the Kunsan Experimental Zone Project to include China’s Shanghai, Xiamen and Jiangsu provinces, where many Taiwanese enterprises are located.
Phoo said the project would facilitate cross-border yuan lending for Taiwanese companies with operations in Kunsan.
He welcomed Taiwan’s negotiating with China on the approval of investment quotas sized at 100 billion yuan for Taiwanese financial institutions and the introduction of yuan-denominated insurance policies in Taiwan.
“This will make Taiwanese banks more willing to increase yuan liquidity on their balance sheets,” Phoo said.
Taiwan recently added yuan to its foreign exchange settlement system, a move that is set to reduce transaction costs, lower foreign exchange risks and increase local corporates’ willingness to switch to yuan for cross-strait trade and investment.
The Australia and New Zealand Banking Group said that offshore yuan markets are likely to grow vibrantly next year on the back of supportive policies, as well as institutional and individual demand.
With the expected launch of China International Payment System next year, direct cross-border clearing and settlements will become easier for banks present in Shanghai, ANZ said.
“Foreign banks with onshore presence would be more capable of clearing yuan in their home countries,” ANZ said.