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September 26, 2017

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Central bank inks cross-strait currency MOU

The Central Bank of the Republic of China (Taiwan) announced in a hastily arranged press conference yesterday that it has signed a memorandum of understanding (MOU) for currency clearance with mainland China, marking a starting point for banks to provide the service in the future.

General Chamber of Commerce Chairman Chang Pen-Tsao (張平沼) estimated that the MOU can save approximately NT$50 billion a year for businesses.

The pact states that — 60 days after the MOU's signing — a currency clearance mechanism will be established on both sides.

Central bank Governor Perng Fai-nan (彭淮南) said he is still cautious about the system's actual date of implementation, despite the timetable of 60 days stipulated in the MOU. He said much effort is still needed for people to enjoy the service.

Perng cited the case of the Hong Kong Monetary Authority and the People's Bank of China (PBOC) which signed a currency clearance MOU on Nov. 19, 2003. That service did not start until Feb. 25, 2004.

The central bank will spare no effort in expediting the process, Perng said. He added, however, that to complete the process still requires the effort and consent of the Chinese government.

The MOU stipulated that in 60 days the central bank of Taiwan and the PBOC will each appoint a bank in China and Taiwan, respectively, to be responsible for the money clearance service. In the future, both the New Taiwan dollar (TWD) and yuan (renminbi) will be able to be used as a means of transaction on both sides, making it easier for business owners to manage their cash flow.

Perng said that the central bank will appoint a local bank that has branches in mainland China to be responsible for providing TWD services in China. He said the selection will be based on the principle of fairness and transparency.

When the mechanism is established, yuan cash will no longer be provided by the Bank of China in Hong Kong.

China's quasi-official Taiwan Affairs Office spokesman Yang Yi (楊毅) stated that the signing of the MOU is beneficial for both sides. The MOU can reduce the risks related to exchange rates and facilitate trade.

DBUs, OBUs to Borrow Yuan by Next Week

Starting next week, offshore banking units (OBU) and domestic banking units (DBU) will be able to borrow yuan from each other.

As for yuan remittance and deposit services, the central bank stated that these will have to wait until the money clearance mechanism is established.

Financial Supervisory Commission Chairman Chen Yuh-chang (陳裕璋) said that when the mechanism is established, people will be able to open yuan deposit accounts in DBUs and enjoy insurance of NT$3 million per account.

To invest with bonds and funds in yuan, Taiwan citizens must wait for the yuan deposit to reach a significant amount and banks start to offer these services.

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