The central bank yesterday said that local banks would be allowed to make Chinese yuan loans and to accept yuan deposits in Taiwan from next month at the earliest, after inking an agreement with its Chinese counterpart, the People’s Bank of China, to build a yuan-clearing mechanism.
That would pave the way for Taiwan to become a Chinese yuan offshore trading center.
Accepting Chinese yuan deposits will be the only business launched before the Lunar New Year early next month, while other yuan-denominated businesses, such as making Chinese yuan loans, are expected to be launched in the near future, the central bank said.
“Taiwanese banks may start doing Chinese yuan business by the Lunar New Year holidays,” central bank Deputy Governor Yang Chin-lung (楊金龍) told a press conference yesterday.
Domestic banking units (DBU) in Taiwan will be allowed to exchange up to a maximum of 20,000 Chinese yuan per person per day for holders of yuan-deposit accounts, the bank said in a statement.
Meanwhile, Taiwanese will be able to remit as much as 80,000 yuan to China per day, with the account holders of the remitters and remittees allowed to be different, the statement said.
The central bank had expected Chinese officials to allow a higher quota for both yuan exchanges and remittances in Taiwan, but it turned out to be at the same level as the quota in Hong Kong.
Yang added that because trade and tourism between the two countries are increasing, yuan-based financial products and services have become in high demand, offering the Chinese yuan business in Taiwan an advantage.
However, Taiwan has to spend a year or two to build up capital of 60 billion yuan — the amount recorded in Hong Kong, Yang added.
The Bank of China’s (中國銀行) branch in Taipei is scheduled to submit its application to be designated the clearing bank for yuan in Taiwan to the central bank on Monday.
The central bank and the Bank of China will then invite all DBUs in Taiwan eligible to start yuan business to discuss further details on Wednesday next week.
Steve Chuang (莊懷德), senior vice president of wealth management at HSBC Taiwan, suggested that investors shift about a third of their investment portfolio to yuan-denominated assets in the near future, to benefit from the continuing appreciation of the yuan against the US dollar.
Taiwan and China signed a memorandum of understanding on a currency clearing agreement on Aug. 31 last year. The central bank appointed the Bank of Taiwan’s branch in Shanghai as the New Taiwan dollar clearing bank in China on Sep. 17 last year.