Bank of Taiwan (台灣銀行) and Mega International Commercial Bank (兆豐國際商銀) will soon be allowed to handle yuan cash settlement services with the Hong Kong arm of Beijing-based Bank of China (中國銀行), the central bank said yesterday.
The scheme will allow local financial institutions to buy the Chinese currency in cash from the two state-controlled lenders rather than through foreign banks, such as HSBC Holdings and the Bank of America in Hong Kong, the central bank said.
“In the future, Bank of China [Hong Kong] will be able to supply us with new notes at a lower cost and the supply will be steady,” central bank Deputy Governor George Chou (周阿定) told a briefing.
The remarks came after the People’s Bank of China (中國人民銀行), appointed the Bank of China to handle yuan transactions for Taiwanese banks through its Hong Kong unit earlier yesterday.
Chou said that Bank of Taiwan and Mega International Commercial Bank would be the only two local lenders qualifying to be settlement banks, and will submit their applications as early as tomorrow.
After the two banks receive regulatory approval, they will sign yuan clearing service agreements with the Bank of China (Hong Kong) before they can begin the new service, the central bank said, declining to specify the timeframe.
Chou said that the new scheme will help solve problems in yuan cash exchanges with foreign financial institutions, including unstable cash note supply, damaged notes and high exchange costs.
“We will save around 1 percent in the cost of yuan settlement services [with the new scheme], which translates into approximately NT$1,000 per 20,000 yuan,” Chou said.
Officials from the two Taiwanese lenders said they welcomed the new settlement mechanism because HSBC and Bank of America in Hong Kong have monopolized the market for too long.
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