ANZ is disappointed over cross-strait currency pact

By Crystal Hsu  /  Staff reporter

Wed, Sep 05, 2012 - Page 13

Australia and New Zealand Banking Group (ANZ) yesterday voiced disappointment at the lack of concrete details over the currency clearing pact outlined between Taiwan and China last week, in which the two sides merely agreed to work out a currency settlement mechanism.

Such a mechanism would foster great business opportunities, given the volume of cross-strait trade, allowing Taiwan to become an offshore yuan trading center alongside Hong Kong, without replacing it, ANZ Greater China economist Raymond Yeung (楊宇霆) said.

Taiwan inked a memorandum of understanding (MOU) with China on Friday under which bilateral monetary authorities will each appoint a clearing intermediary to handle currency exchange and reflux and other services.

“The MOU is nothing more than a letter of intent showing both sides are willing to introduce currency settlement and clearing services,” the Hong Kong-based economist told a media briefing in Taipei.

The pact fails to contain details about which banks are to provide the services and when, suggesting that differences remain, Yeung said.

Central bank Governor Perng Fai-nan (彭淮南) said more talks were necessary and that Taiwan could not decide the pace unilaterally.

Yeung estimated it would take Taiwan longer to introduce yuan-based services and products, for political reasons.

“After all, Hong Kong is part of China, which makes things easier,” Yeung said.

Taiwan might not upstage Hong Kong as an offshore yuan trading hub even after settlement and clearing services are in place, he said.

Most customers will likely hold on to familiar trading facilities, Yeung said, adding that yuan settlements account for only 3 percent of cross-strait trade, which hit US$120 billion last year.

The penetration rate may climb to 10 percent with the establishment of a cross-strait currency clearing regime, as exporters seek to save currency conversion costs while the yuan remains a controlled currency.

That would translate into US$12 billion a year, a large amount in terms of business potential for domestic financial institutions, Yeung said. Yuan business opportunity is not limited to trade settlements alone. A report by HSBC Taiwan showed that 40 percent of affluent Taiwanese would like to open yuan banking accounts so they can purchase yuan-based financial products and services.

The government plans to extend yuan business from local lenders’ offshore banking units to their domestic banking units, allowing retail customers in Taiwan to own yuan-denominated deposits and securities.

Currently, only 3 percent of Taiwanese hold yuan passbooks and most use yuan for travel purposes, the report found.

The central bank reportedly would choose a clearing bank by the end of this month after indicating last week all lenders with branches in China are eligible to offer settlement services.

The Financial Supervisory Commission (FSC) said yesterday it would ease restrictions within a month on investments by commercial and industrial banks on yuan-denominated securities.

The planned regulatory easing aims to allow local lenders more channels to digest yuan funds that may increase with extensions of yuan operations, the FSC said in a statement.

Meanwhile, both offshore and domestic banking units may go ahead and offer yuan services and products without FSC approval once the clearing mechanism is established, the statement said.