Taiwan nationals and Chinese visitors may soon be able to convert their yuan into New Taiwan dollars in Taiwan if a central bank proposal allowing currency exchange to take place in Taiwan proper is passed by the legislature.
At the moment, Taiwan prohibits direct NT dollar-to-yuan currency exchange in any Taiwanese banks or financial institutions except for designated locations on Kinmen.
Those who wish to change their yuan into NT dollars in Taiwan must go through a two-step process by first converting their Chinese currency into US dollars or any other foreign currencies recognized in Taiwan or a third destination.
The individual can then exchange foreign currency for NT dollars in Taiwan.
The legislature's Home and Nations Committee yesterday passed an amendment to Article 38 of the Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area (台灣地區與大陸地區人民關係條例) authorizing the Financial Supervisory Commission and the central bank to deal with currency exchange issues from now on instead of the Mainland Affairs Council (MAC).
The amendment will be put to the legislative floor for a second reading, which is likely to be passed given the Chinese Nationalist Party’s (KMT) majority.
Central bank Deputy-Governor George Chou (周阿定) proposed changes to the act that would allow Taiwanese and Chinese nationals carrying less than 20,000 yuan to exchange it for NT dollars at any of the government’s designated financial institutions in Taiwan.
For Chinese visitors, any unused NT dollars could also be changed back into yuan, but such privileges would not be extended to Taiwanese.
According to Chou's proposal, Taiwanese nationals who want to change their NT dollars into yuan must still use the traditional method of using a third country’s currency.
Chou added that the next step would be to work with Beijing to allow Taiwanese nationals to directly exchange their NT dollars into yuan in China. Presently, China does not recognize NT dollars as a legal currency.
New MAC Chairwoman Lai Shin-yuan (賴幸媛) said she hopes the resolution will take effect by the end of next month to accommodate the expected influx of Chinese tourists starting in July.
KMT lawmakers touted the amendment, saying direct currency exchange could weaken the growing currency black market as well as provide convenience for the public. KMT Legislator Lee Jih-chu (李紀珠) said, however, that Taiwanese should also enjoy equal privileges.
“Why should Taiwanese spend twice the amount of time and pay two transactions fees just to convert their NT dollars into yuan? The public would question why the Taiwanese banks collect yuan and refuse to release it to them,” she said.
Democratic Progressive Party (DPP) lawmakers demanded the administration sign a mutual and equal currency clearing agreement with Beijing before allowing domestic NT dollar-to-yuan exchange.
Lai said the government has no plan to push Beijing for a clearing agreement anytime soon.
The yuan’s full convertibility possibly after July is, in principle, welcomed by the nation’s financial sector, bankers said yesterday.
“We are happy to serve our clients who need yuan exchange while creating some fee income out of the currency business,” said Lee Chang-ken (李長庚), chief strategy officer of Cathay Financial Holding Co (國泰金控), the nation’s largest financial service provider by assets, by telephone yesterday.
But Lee also expressed concern over the yuan’s domestic supply if Chinese authorities fail to ensure a steady outflow of cash to Taiwan.
“There may be a chaotic period in the beginning as there will be more demand for the yuan than supply,” he said, adding that “hopefully, after Chinese tourists are allowed, they will bring in some cash supply.”
Lee, therefore, threw his support behind the central bank’s earlier two-phase proposal by adopting a one-way exchange first — allowing domestic banks to buy yuan bills and then open up the yuan’s full convertibility after China agrees to sign a currency-clearing pact.
A currency-clearing pact would be signed on a government-to-government basis to ensure the convertibility and supply of both countries’ currencies in their respective markets.
Yang Kung-yi (楊恭逸), a currency trader at Shanghai Commercial & Savings Bank (上海商業儲蓄銀行), also expressed a positive view toward the yuan policy since “the policy is less complicated and requires only a legal revision to facilitate.”
“And such a policy will meet part of people’s expectations on the new government’s polices of opening up toward China although its momentum to boost the local economy remains to be seen,” he said.
The convertibility’s impact on the foreign exchange currency in Taipei will be limited, he added.
Yang and Lee, however, expressed concerns over the possible circulation of fake yuan bills.
Lee urged the central bank to immediately plan training for bank employees to identify fake yuan bills, which takes time and skill, but could ward against crime and potential losses.
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