With the cross-Taiwan Strait currency clearance mechanism ready for launch, Perng Fai-nan, governor of the Central Bank of China (CBC), said yesterday (Dec. 12) that the CBC will strive to obtain renminbi-business quota higher than Hong Kong or at least equal to Hong Kong’s level, adding that there will be no quota limit for cross-border trade settlement, a treatment better than Hong Kong.
Regarding the absorption of renminbi deposits with ultra-high interest rate of 3% by the OBUs (offshore banking units) of some banks, Perng warned that such a practice is risky, due to the lack of outlets for the deposit fund, and violates the principle of sound management.
Speaking at the Legislative Yuan, Perng pointed out that the Taipei branch of the Bank of China, which has been designated as the renminbi clearance bank in Taiwan, will sign a currency clearance contract with People’s Bank of China, clarifying the scope and rights/obligations for the authorization of renminbi clearance business. Afterwards, domestic banks will be able to launch renminbi deposits within one month, hopefully by the Chinese Lunar New Year, said Perng.
Perng expressed that the CBC will strive to gain higher quota for renminbi-related business than Hong Kong; at present, Hong Kong people can convert up to 20,000 yuan each time and remit up to 80,000 yuan to the accounts with the same names in China daily. There will be no quota limit for cross-border trade settlement, though, unlike Hong Kong, which is subject to the quota restriction of 200 billion yuan quarterly for cross-border trade.
In response to concern of legislators that local people may convert large amount of NT dollars to renminbi, to the detriment of the financial stability, Perng stated that interest rates for renminbi deposits in Taiwan will be similar to the interests of NT-dollar deposits. Perng estimated that renminbi deposits in Taiwan will account for less than 8% of the total deposits, lower than the 8% ratio in Hong Kong. Perng noted that interest rates for renminbi deposits in mainland China hit 2.8-4.7% per annum, but the rates reach only 0.25% for offshore renimbi demand deposits and 0.25-0.6% for time deposits.
Perng reported that after the launch of cross-Strait currency clearance mechanism, the CBC will continue to negotiate with People’s Bank of China for the establishment of currency swap mechanism, which will enable the CBC to include renminbi assets into the portfolio of forex reserves.
