Taiwan will start providing an offshore spot rate and interbank offered rate between the Chinese yuan and the US dollar starting on Monday, giving a formal benchmark for market participants to reference when pricing yuan-denominated loans, interest rate contracts and derivatives products, the central bank said yesterday.
The Taipei Foreign Exchange Market Development Foundation (台北外匯市場發展基金會) will be the mechanism’s management institution, with Thomson Reuters Corp selected to be an official calculating agent for the benchmark.
The calculation of the two benchmark rates is to be based on the daily rate contributed by 15 regional and global banks in Taiwan, and is to be published at 11:15am every trading day.
“To accelerate the pace to become an offshore center for the yuan, the launch of this mechanism is an important part of Taiwan’s financial infrastructure,” the bank’s department of foreign exchange deputy director-general Harry Yen (顏輝煌) told a press conference.
Taiwan’s overall yuan deposits totaled 293.03 billion yuan (US$47.65 billion) as of the end of last month, after the central bank allowed domestic banking units to start the business in February last year.
The rising yuan-denominated cash pool in Taiwan has led to the necessity to publish the two benchmark rates between the yuan and the greenback, Yen said.
Taiwan is the second offshore market to offer a spot fixing rate and interbank offered rate for the yuan, following Hong Kong.
Hong Kong started providing an offshore spot fixing rate for yuan in June 2011, followed by the publishing of the interbank offered rate benchmark between the yuan and the US dollar last year.
Separately, the value of the New Taiwan dollar rose to a two-week high yesterday in Taipei’s foreign exchange market, after foreign investors boosted holdings of local stocks and on speculation that higher growth in inflation will prompt the central bank to tolerate currency gains.
The strength of other regional currencies also placed selling pressure on the greenback in the market before the central bank stepped in to slow the pace of the NT dollar’s appreciation, dealers said.
The central bank has sold the local currency in the run-up to the close on most days since March 2012, a move that boosts export competitiveness even as it raises import costs.
The NT dollar advanced NT$0.02 (0.1 percent) to close at NT$29.965 against its US counterpart, according to data provided by the Taipei Forex Inc. At one point, the currency rose to NT$29.883 to reach its highest level since Aug. 13.
It was the second consecutive session that the NT dollar appreciated against the greenback to break the NT$30 mark.
Additional reporting by agencies
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