The government is going out of its way to come up with a currency exchange mechanism between Taiwan and China as an accessory to its "mini three-links" plan, which will go into effect next year.
Chairman of the Mainland Affairs Council (MAC, 陸委會) Tsai Ing-wen (蔡英文) said yesterday she will come out within two weeks a detailed plan on how to allow the offshore banking units (OBU) of the local banks to offer services to companies doing business in China.
"There is definitely a need for a currency exchange mechanism with China," said Norman Yin (殷乃平), an economist who teaches banking at National Chengchi University(政治大學).
Financial experts believe the mini three-links policy will not become feasible without a currency arrangement scheme under which financial transactions can be conducted.
Lin Chung-ping (林中斌), vice chairman of the MAC, even said that renminbi may be circulated in Kinmen and Matsu on the condition that "China recognizes the NT dollar and the two sides establish a currency settlement mechanism."
Policy shift
His statement reflects a shift in MAC's previous stance of allowing residents of Kinmen and Matsu to only use in NT dollars and US dollars.
The ground-breaking proposal allows financial institutions in Kinmen and Matsu to offer financial services for cross-strait traders.
"It is a symbolic move for more positive developments in the future," said Chen Yuan-pao (
But any decision to allow the circulation of renminbi on Kinmen and Matsu may have to be approved by Beijing, which still uses draconian measures to regulate its currency.
Denise Yam, an economist at Morgan Stanley Dean Witter in Hong Kong, believes that allowing such circulation would affect China's grip on the currency, which is not fully convertible.
Capital flows
Taiwan's abrupt announcement of the banking decision, analysts believe, may be an attempt to calm rising fears in Taiwan over the massive outflow of capital into China.
Investors and legislators have repeatedly called for mechanisms to attract capital back into Taiwan from China. Bankers have also complained that the lack of direct banking across the Strait is robbing them of an opportunity to serve Taiwanese who are investing in China.
Even with such a currency mechanism, insiders question whether investors would send large amounts of capital back to Taiwan.
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