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Talk of the Day -- Progress in cross-strait currency settlement talks

2012/06/14 22:49:39

The two sides of the Taiwan Strait could sign a currency settlement agreement soon as China has reportedly agreed to a simplified mechanism for such service.

Originally, each side had to designate a bank to handle currency settlement. Financial sources said Chin has agreed to allow the soon-to-open Taipei branch of Beijing-based Bank of China to deal with cross-strait currency settlement.

China's acquiescence to such a simplified mechanism will facilitate the signing of the long-talked-about currency settlement pact, local media reports said.

Once the agreement is sealed and takes effect, local banks will be allowed to operate Chinese yuan-denominated deposit services and develop relevant investment tools, such as Dim Sum bonds, which refer to Chinese yuan-denominated bonds issued in Hong Kong.

At present, Taiwanese companies or individual businessmen can only deposit their Chinese yuan or renminbi holdings at local banks' offshore banking units (OBUs).

According to statistics compiled by the Central Bank of the Republic of China (CBC), renminbi deposits at OBUs surged to an all historic high of 12.954 billion (US$2.05 billion) at the end of April.

The figure indicated that the deposits have grown by 128 times since such a banking service was inaugurated last August.

The fast growth reflects local business people's strong demand for renminbi and their confidence in the currency's revaluation potential, market analysts said.

The following are excerpts from the local media coverage of the much- anticipated signing of a cross-strait currency settlement accord:

Economic Daily News:

Taiwan's central bank originally planned to designate the Shanghai branch of the state-owned Bank of Taiwan to handle Taiwan dollar-denominated settlement in China, while the Taipei branch of Bank of China will deal with renminbi-denominated settlement in Taiwan.

As such arrangements involve complicated procedures that need much time to complete and China does not have an actual demand for Taiwan dollar-denominated payment, Beijing authorities reportedly have agreed to a simplified mechanism for currency settlement.

That means China will allow the Taipei branch of Bank of China to handle currency settlement without Taiwan's reciprocal payment services.

Financial market sources said senior banking officials from both sides are negotiating technical details and are expected to come to concrete conclusions by the end of this month at the earliest.

As China has become Taiwan's top foreign trade partner, early signing of cross-strait currency settlement agreement will help Taiwanese business people save currency exchange costs and reduce risks of exchange rate fluctuations, financial analysts said.

Major local banks said they have been well-prepared to offer renminbi deposit services.

"As soon as the currency settlement agreement takes effect, we can start such services," said a banking executive.

By then, local people with renminbi holdings can earn interest payments by depositing their holdings at banks and even earn additional profits from possible appreciation of the Chinese yuan, the banker said. (June 14, 2012).

Commercial Times:

Fan Liqing, spokeswoman for China's Taiwan Affairs Office, said at a regular press briefing in Beijing Wednesday that forging a cross-strait currency settlement system is of great interest to various industries in Taiwan and will benefit both sides by opening new ground for financial cooperation.

Fan said China would be pleased to see both sides finalize negotiations in the near future.

It marked the first time a Chinese official has publicly touched on the subject and signaled progress in relevant negotiations.

Local officials said CBC Governor Perng Fai-nan and his Chinese counterpart, Zhou Xiaochuan, governor of the People's Bank of China, would sign the cross-strait currency settlement agreement on behalf of the two sides.

Banking sources said Taiwan has agreed to the opening of Taipei branch of the Bank of China, but it remains to be seen whether China would reciprocally approve opening of the Shanghai branch of Bank of Taiwan (BOT).

"It would mark a significant step forward in cross-strait financial engagements if the BOT's Shanghai branch can open smoothly," said a local banker. (June 14, 2012).

(By Sofia Wu)