Taiwanese banks will be allowed to handle China's tightly controlled currency this year under an agreement signed Friday, paving the way for the island to become an offshore centre for yuan trading.
After the deal becomes effective in two months, Taiwanese banks will be able to take yuan deposits and convert yuan into the
New Taiwan dollar. The conversion will allow Taiwanese investors on the mainland to cut foreign exchange costs by skipping the current process of first converting their yuan earnings into U.S. dollars.
The long anticipated memorandum of understanding was signed separately by Governor Zhou Xiaochuan, the head of the People's Bank of China in Beijing and his counterpart, central bank governor Perng Fai-nan in Taipei.
The deal will also clear the way for Taiwanese banks to tap into new businesses, such as yuandenominated bonds or derivatives. Those lucrative activities are now handled by Hong Kong banks or underground local lenders.
Taiwan hopes the deal will enable it to develop into another yuan offshore centre after Hong Kong.
