Currency Convertibility Means Cross-Strait Win/Win
China Times editorial (Taipei, Taiwan, ROC)
April 5, 2012
Summary: In the wake of the financial tsunami, the Euro fell victim to the
European debt crisis. The US dollar was also debased. The RMB remains
bullish because Mainland China is the world's second largest economy.
Singapore and London are actively seeking to become offshore RMB
centers. These are tremendous business opportunities. Taiwan enjoys many
advantages. It must not be left behind. Enormous cross-Strait goodwill
has been exchanged at the highest levels. We look forward to the swift
signing of a currency clearing agreement, and the implementation of
cross-Strait currency interchangeability. The establishment of a
cross-Strait currency clearing system will be a major milestone,
following the signing of the cross-Strait financial MOU.
Full Text below:
The Boao Forum has adjourned. The Wu/Li Meeting attracted a great deal of attention. Mainland Vice Premier Li Keqiang said that greater economic cooperation equals greater cross-Strait prosperity. He said that following ECFA, Beijing would accelerate follow-up consultations and cross-Strait currency clearing system agreements. Beijing would approve cross-Strait agreements signed in the first half of the year. Vice President-elect Wu Den-yih revealed that a Mainland-based bank would set up a branch bank on Taiwan, and conduct business in NT dollars. Banking and Finance Academy Chairman Shea Jia-dong called on the two sides to establish a currency clearing system, as soon as possible. A currency clearing system would increase cross-Strait currency convertibility, accelerate the internationalization of the RMB, and create a win/win situation for both Beijing and Taipei.
Economic and trade exchanges have intensified since the two sides signed ECFA. More and more members of the public are calling for the establishment of a cross-Strait currency clearing system. Central Bank President Perng Huai-nan told the Legislative Yuan that "Consultations over the cross-Strait currency clearing system are proceeding smoothly. The atmosphere is positive. We hope to reach an agreement before the summer recess." Perng said "The Central Bank is very anxious to complete this task." Premier Sean Chen pointed out that "If we can reach an agreement with the Mainland, we will have a basis for a RMB offshore trading center." In fact, the ROC Central Bank has already conducted exercises simulating the cross-Strait currency clearing and settlement systems. Everything is ready. We are merely waiting for Beijing to give the plan the nod.
Consultations over cross-Strait currency clearing and settlement systems have been long delayed. But recently events took a turn for the better. In mid-March, during the 11th National People's Congress, PRC Premier Wen Jiabao said he would promote a cross-Strait banking settlement system within his term. He said he would encourage cross-Strait banking industry stock offerings. Li Keqiang mentioned the cross-Strait currency settlement agreement at the Boao Forum. Wen Jiabao and Li Keqiang's statements show that Beijing's attitude regarding the establishment of cross-Strait currency clearing system has run hot and cold.
According to reports, the Bank of China Taipei Branch has been successfully upgraded. It will become the RMB clearing bank on Taiwan. The Bank of Taiwan and the Mainland Branch of the Mega International Commercial Bank will also undergo liquidation. At the end of March, Bank of China President Li Lihui, told reporters in Beijing that "The Bank of China enjoyed a unique advantage during liquidation. It was fully prepared." He said that good clearing and settlement systems would be extremely beneficial to the cross-Strait financial sector, as well as to business growth on both sides. Such statements show that the Bank of China is ready.
What are the benefits of a cross-Strait currency clearing system? One. Cross-Strait trade will benefit from another instrument for making payments. A currency clearing system will enable businesses to reduce foreign exchange costs and risks. Two. Taiwan has a substantial surplus on the Mainland. The RMB is not an international currency. The ROC Central Bank has accumulated large quantities of RMB. These must constantly be converted into U.S. dollars. For Beijing, this will accelerate the internationalization of the RMB. As Shea Jia-dong said, "The two sides must still clear their currency through Hong Kong. This is reminiscent of the old system of no direct flights. A direct currency clearing system will benefit both sides. "
Over the long term, the two sides must first create a currency clearing system, Only then can Taiwan take the next step towards becoming an offshore RMB center. National banks and designated foreign exchange banks (DBU) must be permitted to conduct business in RMB. Once that happens, savings accounts, bonds, and other wealth management instruments and financial derivatives, will bring in ten times as many opportunities. They will open the way to a "Blue Ocean." Cross-Strait trade totals 150 billion USD annually. Taiwan businessmen on Mainland China have unofficially invested over 200 billion USD. Last year, 1.7 million Mainland tourists visited Taiwan. Over 28 million Mainland tourists visited Hong Kong. There is still much room for growth. Once the two sides establish a currency clearing system, Taiwan will enjoy advantages over Singapore and London as an offshore RMB center.
The key to the establishment of a cross-Strait currency clearing system lies with Beijing. The ROC Central Bank has been consulting with the Peoples Bank since 2010. But it has made no progress over the past year. Financial analysts consider currency a symbol of national sovereignty. Cross-Strait currency clearing agreements involve political sensitivities. Beijing wanted Hong Kong to remain its number one offshore RMB center. That is why it shelved the cross-Strait currency clearing system. But as long as both sides are willing, technical problems can be overcome.
In the wake of the financial tsunami, the Euro fell victim to the European debt crisis. The US dollar was also debased. The RMB remains bullish because Mainland China is the world's second largest economy. Singapore and London are actively seeking to become offshore RMB centers. These are tremendous business opportunities. Taiwan enjoys many advantages. It must not be left behind. Enormous cross-Strait goodwill has been exchanged at the highest levels. We look forward to the swift signing of a currency clearing agreement, and the implementation of cross-Strait currency interchangeability. The establishment of a cross-Strait currency clearing system will be a major milestone, following the signing of the cross-Strait financial MOU.