Bank of China Ltd.’s Taipei branch won the right to clear yuan transactions in Taiwan, paving the way for use of the mainland’s currency on the island that’s been ruled separately since a civil war six decades ago.
The bank branch will work to start yuan clearing within a month, Taiwan’s central bank governor Perng Huai-Nan told a meeting of lawmakers today. China’s central bank yesterday announced the appointment of Bank of China, which has been clearing yuan transactions in Hong Kong since 2003. Taiwan appointed Bank of Taiwan’s Shanghai branch to clear transactions in mainland China after the governments signed an agreement in August.
The pact highlights growing economic ties since Ma Ying-Jeou became Taiwan’s president in 2008 and moved away from the pro-independence stance of his predecessor, Chen Shui-Bian. Taiwan has been ruled separately since Chiang Kai-shek’s Kuomintang party fled the mainland in 1949 after a civil war against Mao Zedong’s Communists. The Communist Party still deems Taiwan a renegade province that must be unified with China, by force if necessary.
The yuan clearing agreement signed by both governments on Aug. 31 paved the way for the island’s corporations and individuals to set up accounts in the Chinese currency. The pact allows interbank trading of the yuan, creating a new exchange rate for the currency. Previously, trading of the yuan was allowed only in Hong Kong and China.
The ability to clear yuan transactions will allow companies to raise funds in the Chinese currency in Taiwan to fund their investments and operations on the mainland. Sales of bonds denominated in the currency in Hong Kong, the first region outside China able to clear transactions in yuan, surged fourfold last year from 2010, data compiled by Bloomberg show.
Deal in Effect
While the island named Bank of Taiwan as its clearing bank in September, Taiwan central bank Governor Perng Fai-Nan said on Oct. 29 that the appointment would only take effect once China selects its clearing bank.
Taiwan has the world’s biggest trade surplus with China, according to government data. Tariffs on imported goods from both sides were reduced by a combined $490.1 million in the first 10 months of the year, according to Taiwan’s Straits Exchange Foundation.
Perng told lawmakers today that interest rates for yuan deposits will be similar to those for Taiwan dollar savings.
In addition to Taiwan, China has also been expanding the use of its currency with other trade partners including Singapore, Japan and Thailand to promote usage of the yuan in global trade and investment.
Bank of China said on its website yesterday that it processed 1.72 trillion yuan ($275 billion) of cross-border transactions in the currency during the first nine months of this year, an increase of 31 percent from the same period of 2011.