Taiwan praises currency memo with mainland

TAIPEI -- Taiwan's authorities, experts and media have praised a direct currency clearing memorandum with the Chinese mainland announced simultaneously in Beijing and Taipei on Friday.

The deal, signed by the monetary authorities of the mainland and Taiwan, calls for direct currency clearing between the two sides, a move expected to reduce trade costs and risks of exchange rate fluctuations.

Taiwanese leader Ma Ying-jeou said shortly after the announcement that the signing of the memorandum would greatly help cross-Strait financial cooperation.

He added the deal testifies to mutual trust between Taiwan and the mainland.

For many experts in Taiwan, the increasing importance of the Chinese yuan in global trade and investment means fresh opportunities for the island, given its close business and cultural ties with the mainland.

Chien-Fu Jeff Lin, a professor with Taiwan University Department of Economics, said the direct currency clearing called for by the memorandum will enable Taiwan to eventually become an off-shore yuan center.

He said that the mainland's economic development has created great demand for yuan transactions and this trend calls for more off-shore yuan centers other than Hong Kong.

The Chinese yuan is not a fully convertible currency yet. But as the mainland's economic and financial power continues to grow, international demand for yuan has increased in the past few years.

Hong Kong has been gradually evolving into a major off-shore yuan center, where financial institutions can roll out yuan-denominated services and products.

The Asian financial center, with a world-class legal and regulatory framework, has attracted international and even mainland companies to raise funds in yuan to finance their trade and investment operations on the mainland.

These deals have brought new business opportunities for Hong Kong's financial sector.

For Taiwan, the benefits of direct currency clearing with the mainland and the prospects of becoming an off-shore yuan in the future are multi-faceted.

Taiwan's consumers and companies have parked savings of up to NT$31 trillion (about $1 trillion) with banks and other financial institutions. With direct cross-Strait currency clearing, these funds can be at least partly converted into yuan and thus enjoy higher returns as the benchmark interest rates on the mainland are currently higher than those in Taiwan.

Chang Chinyuan, a spokesman for SinoPac Holdings, said that when financial institutions offer yuan-denominated financial services and products, Taiwanese people will have more investment options and pensioners can expect higher returns on their savings.

Taiwan's media have also largely supported the cross-Strait currency clearing memorandum, eyeing greater financial cooperation between the two sides in the future.