With a fast-growing pool of Chinese yuan and a close trade relationship with China, in the long term the nation has the potential to become a leading offshore yuan center, foreign banks said in Hong Kong.
The internationalization of the yuan is to continue this year, with more regions or cities, including Taiwan, Singapore, Seoul, Paris and London, aiming to follow Hong Kong’s example and compete in the huge business by accelerating offshore yuan development, analysts have said.
“Compared with other regions, Taiwan has stood out and shown its market potential for the offshore yuan business,” Standard Chartered Bank (Taiwan) Ltd president and chief executive officer John Tan (陳銘僑) said at a forum in Hong Kong on Friday.
Taiwan’s domestic banking units have been allowed to receive yuan-based deposits since early 2013.
In the past two years, Taiwan has seen the size of its yuan pool grow rapidly, with the outstanding balance of yuan-denominated deposits reaching 302.27 billion yuan (US$48.49 billion) as of the end of last year — the second-largest offshore yuan pool worldwide — according to central bank data.
In addition, the issuance of yuan-based bonds in Taiwan has reached 31.4 billion yuan, making the nation the second-largest offshore market for yuan bonds, data showed.
Compared with other markets, Taiwan has a closer relationship with China in terms of trade, with trade settlement in yuan still having a lot of growth potential, which could be the next focus, Tan said.
There are about 100,000 Taiwanese businesspeople operating businesses in China, and about 1 million Taiwanese living in China, which further raises the demand for yuan settlement, Tan added.
Standard Chartered forecast that the outstanding balance of yuan-denominated deposits in Taiwan would be between 400 billion yuan and 450 billion yuan by the end of this year.
Standard Chartered Bank (Taiwan) managing director and global head of yuan solutions for corporate and institutional clients Carmen Ling (凌嘉敏) said the launch of a free-trade zone in China’s Fujian Province in March might further benefit yuan development in Taiwan by providing a new channel for the large amounts of yuan-based deposits in Taiwan to flow back to China.
Overall, the yuan has continued its quick pace of progress worldwide over the past year, with the People’s Bank of China signing or renewing 13 bilateral currency swap agreements with other central banks.
The establishment of yuan clearing banks in Australia, Europe and Canada in recent months has also increased the use of yuan in trade settlements, cross-border payments and bond issuances in offshore markets besides Hong Kong.
Australia and New Zealand Banking Group Ltd senior economist Raymond Yeung (楊宇霆) said that the yuan might become a major currency actively traded in global financial markets by 2020, mainly due to China’s efforts to liberalize its capital accounts.
Daily foreign exchange turnover of yuan would reach US$3.4 trillion at that time, equivalent to 16 percent of China’s GDP, compared with US$80 billion, or 0.8 percent of GDP, recorded in 2013, according to the estimates of an ANZ research team.
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