Executive Yuan spokesman Shieh Jhy-wey quoted Perng Fai-nan, governor of the Central Bank of the Republic of China (CBC), as saying that the central bank plans to adopt a two-stage approach in introducing full exchange services between the Chinese yuan and the new Taiwan dollar in Taiwan proper, in accordance with requests by opposition Kuomintang (KMT) legislators.

In the initial stage, the central bank will only allow financial institutions to buy Chinese yuan in exchange for new Taiwan dollars, as local banks will have zero or little stock of the Chinese currency available when Taiwan first allows such exchanges, Shieh quoted Perng as saying.

In the second stage, if the central bank is confident of a stable supply of yuan — which could be provided by inbound tourists from China — it will permit financial institutions to both buy and sell the Chinese currency, Shieh added.

Between the two stages, he noted, banking institutions on both sides of the Taiwan Strait will consult each other on how to tackle other technical issues related to the opening.

Shieh did not exclude the possibility that the first stage could take place prior to the inauguration of the new Kuomintang (KMT) administration May 20, although he pointed out that regulations will need to be revised before any currency exchange system can take effect.

Since the Chinese yuan will have to be obtained mainly from Chinese tourists coming to Taiwan, the two-stage opening measure is necessary as Taiwanese citizens make some 4 million visits to China each year, compared to only some 1 million Chinese tourists who will be allowed to visit Taiwan each year if Taiwan decides to allow entry to a maximum of 3,000 Chinese tourists a day after the KMT administration takes office, Shieh added.

The KMT legislative caucus proposed recently that Taiwan should launch exchange facilities for the two currencies even before relevant regulations are amended and a cross-strait clearance and settlement mechanism is established.

President-elect Ma Ying-jeou has committed to allowing free exchange of the Chinese yuan in Taiwan. Individuals have been allowed to exchange up to 20,000 yuan on the Taiwan-controlled islands of Kinmen and Matsu, which lie just off China’s southeastern coast, since October 2005.

But with an agreement on allowing entry of Chinese tourists to Taiwan expected to be struck after the new government takes office, the issue of exchange services on Taiwan proper has become more pressing.

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