Now that the government has permitted Taiwanese banks to offer yuan-denominated deposit accounts, some banks are seeking to lure customers to open such accounts by offering annual interest rates as high as 2 or 3 percent. However, these high interest rates cannot be maintained forever — they will eventually be reduced significantly, especially when more Chinese currency becomes available in Taiwan.
The interest rates that banks offer on yuan accounts will eventually be decided based on how much Chinese currency they need. A bank may have many channels through which to clear yuan, some that may be legal and others, not yet approved, that are on the margins of the law.
For example, banks could lend yuan to businesses operating in China — including Chinese state-run and private companies, as well as those owned by Taiwanese and other overseas investors — or they may invest the currency in bonds issued by Chinese state-run companies or banks. If so, the banks may seek to attract yuan deposits by offering high interest rates on yuan accounts.
If, on the other hand, a bank has no legal channels for clearing yuan — which at present is true for most Taiwanese banks — it will eventually have to cut its interest rates in order to avoid incurring a loss.
Given that an increasing number of people are expected to open yuan deposit accounts, and that businesses which have deposited their yuan funds in Hong Kong banks may move some of that money to Taiwan, the reserves of yuan available to Taiwanese banks is likely to increase. This would reduce Taiwanese banks’ need for yuan, so they would have to lower interest rates on yuan accounts.
In addition, even banks that have viable, legal channels for clearing yuan may not offer very high interest rates on Chinese currency accounts, because what these banks want are large deposits of yuan, for which they will be willing to negotiate the interest rate.
Small deposits are just a drop in the ocean compared with the amounts of money that banks need for their lending services, so they have little reason to offer high interest rates on private, individual yuan accounts.
As yuan is a foreign currency, it carries foreign exchange risk. For members of the public, the difference between the buying and selling prices of foreign currency can be as high as dozens of basis points.
Generally, banks that offer very high interest rates tend to have bigger differences between the buying and selling prices in their posted exchange rates. When dealing with such banks, people find themselves buying yuan at a high price and then selling the currency to the bank at a lower price.
In other words, banks may give people an attractive offer in terms of interest rates, which are highly visible, while customers end up paying it back to the bank through the difference in exchange rates, which are not so easy to compare.
If people choose to buy their yuan from banks that offer low selling prices and then transfer the funds to other banks that pay high interest rates, one might think that they would get a good deal on both the exchange and interest rate.
However, banks usually charge a handling fee for transferring and releasing funds, so people who adopt this strategy may not benefit from it.
Besides, some banks may only pay interest on deposits above a certain amount, or may insist that customers buy other wealth management products.
People should bear these things in mind if they are interested in opening a yuan deposit account as a way to manage their wealth.
Shiu Yung-ming is a professor in the Department of Risk Management and Insurance at National Chengchi University.
Translated by Julian Clegg
US President Donald Trump created some consternation in Taiwan last week when he told a news conference that a successful trade deal with China would help with “unification.” Although the People’s Republic of China has never ruled Taiwan, Trump’s language struck a raw nerve in Taiwan given his open siding with Russian President Vladimir Putin’s aggression seeking to “reunify” Ukraine and Russia. On earlier occasions, Trump has criticized Taiwan for “stealing” the US’ chip industry and for relying too much on the US for defense, ominously presaging a weakening of US support for Taiwan. However, further examination of Trump’s remarks in
As strategic tensions escalate across the vast Indo-Pacific region, Taiwan has emerged as more than a potential flashpoint. It is the fulcrum upon which the credibility of the evolving American-led strategy of integrated deterrence now rests. How the US and regional powers like Japan respond to Taiwan’s defense, and how credible the deterrent against Chinese aggression proves to be, will profoundly shape the Indo-Pacific security architecture for years to come. A successful defense of Taiwan through strengthened deterrence in the Indo-Pacific would enhance the credibility of the US-led alliance system and underpin America’s global preeminence, while a failure of integrated deterrence would
It is being said every second day: The ongoing recall campaign in Taiwan — where citizens are trying to collect enough signatures to trigger re-elections for a number of Chinese Nationalist Party (KMT) legislators — is orchestrated by the Democratic Progressive Party (DPP), or even President William Lai (賴清德) himself. The KMT makes the claim, and foreign media and analysts repeat it. However, they never show any proof — because there is not any. It is alarming how easily academics, journalists and experts toss around claims that amount to accusing a democratic government of conspiracy — without a shred of evidence. These
China on May 23, 1951, imposed the so-called “17-Point Agreement” to formally annex Tibet. In March, China in its 18th White Paper misleadingly said it laid “firm foundations for the region’s human rights cause.” The agreement is invalid in international law, because it was signed under threat. Ngapo Ngawang Jigme, head of the Tibetan delegation sent to China for peace negotiations, was not authorized to sign the agreement on behalf of the Tibetan government and the delegation was made to sign it under duress. After seven decades, Tibet remains intact and there is global outpouring of sympathy for Tibetans. This realization
RSS