Banks counting down to launch of yuan clearing

ANTICIPATION::banks are preparing for the arrival of the yuan, with the central bank waiting to announce the clearing operation details and high deposits expected

By Crystal Hsu  /  Staff reporter

Sat, Jan 19, 2013 - Page 14

Taiwan’s banks are counting down to the launch of Chinese yuan business as the central bank is set to work out clearing details with China’s intermediary, the Bank of China’s (中國銀行) Taipei branch, next week.

Local banks are keen to develop financial products for the retail wealth market, even though corporate and institutional clients are expected to be responsible for most of the yuan flow, Australia and New Zealand Banking Group (ANZ) said in a report after visiting the relevant stakeholders in Taiwan last week.

The finding came after the central bank met with 15 major local banks on Wednesday and suggested they facilitate preparations for yuan operations.

The central bank will announce the clearing operation details after signing a pact with the Bank of China (Taipei), a statement said.

Lin Sun-yuan (林孫源), director-general of the central bank’s foreign exchange department, told local reporters that the chance of settling the currency clearing mechanism next week stood at between 70 to 80 percent.

Bank of China (Taipei) is likely to replicate the Hong Kong model, where local lenders would have access to the Shanghai market directly without routing through Hong Kong, ANZ said.

The exchange and interest rates should fall in line with other offshore yuan markets, unless the central bank imposes a large degree of capital controls limiting yuan flow, which is unlikely, ANZ said.

Individuals are likely to be subject to limits on daily conversions and remittances, the foreign bank added.

Taiwanese companies and individuals are keen to open yuan accounts at domestic banking units, ANZ found, saying that companies will remit their onshore yuan to Taiwan through trade payments; moves that do not involve foreign exchange transactions.

“Treasurers of many Taiwanese manufacturers find this a convenient method to manage overall yuan positions, especially for those who have both payables and receivables,” ANZ said.

The public generally sees yuan as a substitute to high-yielding currencies such as the Australian dollar, while many would also consider converting low interest-bearing NT holdings to yuan, ANZ said.

“An informal survey showed that at least 75 percent of Taiwanese would switch a portion of NT holdings to yuan,” ANZ said, predicting the yuan’s recent appreciation will increase its attractiveness.

ANZ projected that yuan deposits could reach as much as 100 billion (US$16.09 billion) by the end of this year.