Chinese yuan may account for over 3% of deposits in 1 year: banks

The Central Bank of the Republic of China (Taiwan) said a day earlier that yuan-denominated operations are likely to start before mid-February after the People's Bank of China, the mainland's central bank, signed an agreement with Bank of China's Taipei branch to allow it to clear yuan-denominated transactions on the island.

Tony Phoo, an economist with Standard Chartered Bank, said with the cross-strait currency clearing mechanism in place, domestic banking units of banks registered in Taiwan are expected to engage in yuan-denominated businesses ahead of the Lunar New Year holiday of Feb. 9-17.

Phoo said the new business is expected to allow the yuan to account for 3-5 percent of Taiwan's total deposits in one year from the beginning of the new business.

Before the establishment of the cross-strait currency clearing system, only offshore banking units of Taiwanese banks were allowed to conduct yuan transactions, including taking deposits, extending loans and making remittances.

Taiwan and China singed a memorandum of understanding in late August to set up such a currency clearing mechanism. Both sides have been gearing up since then for the new business.

Phoo said the yuan appears attractive to Taiwanese investors due to its low fluctuation risks, and more importantly, the currency is riding an upswing trend in the medium term and will likely push its value to breach 6.10 yuan against the U.S. dollar by the end of 2013.

Judging from the favorable conditions the yuan has, Phoo said the currency is expected to make up 10 percent of Taiwan's total deposits by the end of 2015, and even account for 30-35 percent of the total in the longer term.

Citibank Taiwan said bank clients in Taiwan are likely to change 5-10 percent of their New Taiwan dollar-denominated deposits into the yuan in the future.

According to Citibank Taiwan, the bank deposit balance in Taiwan exceeded NT$32 trillion (US$1.1 trillion) as of the end of November.

The bank said yuan-denominated funds in Taiwan are expected to range between 300 billion yuan and 600 billion yuan in the future.

Phoo said as business ties across the Taiwan Strait are getting closer and travel activity is on the rise, the yuan is expected to become liquid in Taiwan, which will pave the way for the island to become another offshore yuan trading center after Hong Kong.

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