Both sides of the Taiwan Strait have forged a consensus on a cross-strait currency settlement mechanism and will enter substantive talks on it this week.
Taiwan and China have in recent years established banking, securities and insurance supervision cooperation mechanisms, but a cross-strait currency settlement mechanism has lagged behind in a "trial" stage.
Currently, designated banking units can handle exchanges of the Chinese yuan, but they cannot accept deposits or make loans involving the Chinese currency.
Taiwan does allow the overseas banking units of domestic banks to handle yuan-related business under which foreigners and institutional investors can open yuan-designated accounts.
But the designated banking units have to go through either Bank of Taiwan or Mega International Commercial Bank for currency settlements with Bank of China in Hong Kong.
Also, these same banking units cannot freely arrange interbank loans in the Chinese currency but are forced to exchange yuan through overseas branches.
In China, only six cities in Fujian and Guangdong provinces handle Taiwan dollar exchange operations on a "trial" basis.
With the rapid development of cross-strait trade and economic ties, the establishment of a complete currency settlement mechanism is long overdue.
Cross-strait trade currently stands at more than US$150 billion, and Taiwan's investment in China has surpassed US$110 billion. Over 6 million trips are made by people between the two sides of the Taiwan Strait annually, and their demand for currency exchange, though growing, can hardly be satisfied by the current system.
To expand cross-strait currency exchange operations, especially to enable both sides to open deposit, loan and remittance-related operations, the establishment of a currency settlement mechanism is essential.
It will make it more convenient for people on both sides of the Taiwan Strait to change money and help them save between US$1 billion and US$1.5 billion in exchange costs based on the amount of bilateral trade conducted last year. (Editorial abstract - June 25, 2012)
(By Lilian Wu)