Brokerages upbeat about Chinese yuan transactions

Citibank Securities said Chinese-yuan dominated business conducted by domestic banking units (DBUs) of banks registered in Taiwan will provide local financial holding firms, which own the banks, with another important earnings source.

The new business kicked off on Feb. 6.

In light of their improving business ties, in late August Taiwan and China signed a memorandum of understanding to set up a currency clearing mechanism across the Taiwan Strait. The move also paved the path for Chinese yuan transactions being allowed for local banks' DBUs.

Before the cross strait currency clearing system was established, only banks' offshore banking units were allowed to conduct Chinese yuan transactions, such as making remittances and deposits, and extending loans.

Bank of Taiwan's Shanghai branch has been appointed by Taiwanese financial authorities as the clearing bank for New Taiwan dollar-denominated transactions in China, while Bank of China's Taipei branch has been named by Chinese authorities as the clearing bank for Chinese yuan denominated businesses in Taiwan.

Under the currency clearing system, both sides will be allowed to freely conduct currency exchanges between the Chinese yuan and the New Taiwan dollar, which will cut foreign exchange costs as traders will no longer have to first convert the currencies into U.S. dollars before exchanging them.

Citibank Securities said the new financial business was expected to prepare Taiwan for becoming another Chinese yuan offshore trading center after Hong Kong, on the back of increasing cross strait financial exchanges.

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