Initial talks on cross-strait currency mechanism begins: central bank head

The currency swap mechanism proposal has been put on the agenda of cross-strait talks, he said.

A currency swap is an arrangement in which two parties exchange specific amounts of different currencies and a series of interest payments on the initial cash flows are exchanged.

Perng is scheduled to deliver a briefing on the bank's operations during a meeting of the Legislative Yuan's Finance Committee Wednesday. The governor's written report was sent to the committee earlier in the day for lawmakers' reference.

In the report, Perng elaborated on the process of the establishment of a cross-strait currency clearance mechanism agreed last month.

The central bank signed with its Chinese counterpart, the People's Bank of China, a memorandum of understanding on currency clearance Aug. 31 to set up the mechanism, amid rising economic exchanges across the strait.

The agreement will take effect 60 days from the signing.

Perng said in the report that the currency clearance mechanism allows flexibility in fund procurement by cross-strait enterprises. It also helps the government to develop a banking business with cross-strait features, such as the issuance of Chinese yuan-denominated bonds and other financial products, he said.

Speaking of trading in the real estate market, the central bank governor said the trading volume declined in the second quarter of the year due to a seasonal slowdown over Ghost Month, the seventh month of the Chinese calendar, a time when people hold off on purchases.

The housing prices, however, continued to stay at a high level, he said.

Citing a housing index by Cathay Real Estate, he pointed out that the prices of new housing projects rose by 5.7 percent in the second quarter of the year from the previous quarter, and by 7.3 percent from the same period last year.The prices of existing housing units moved upward by 8 percent in the second quarter of the year from the previous quarter, but fell by 2.6 percent from the same quarter last year, he added, citing a housing index by Sinyi Realty Inc.

In terms of foreign funds circulation, Perng said there are currently around 6,000 foreign investors with investments in Taiwan stocks, with 20 of them being involved in frequent capital outflow and inflow exchanges.

The volume of capital inflows and outflows by the 20 investors accounted for around 35 percent of the total capital movement by foreign investors, he said.

The central bank has been paying attention to the frequent capital movements as part of efforts to maintain financial stability of the country, which he described as a small and highly open economy, he said.

Adopting a managed floating rate system can maintain the stability of the New Taiwan dollar's exchange rate and help mitigate the impact of massive foreign capital inflows and outflows to Taiwan's economic development and financial operations, the official said.

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