Taiwanese domestic banking units (DBUs) are gearing up for the start of offshore renminbi trading in the city which is expected to launch.
The initiation of trading in the renminbi, also known as the yuan, has been expected ever since the People’s Bank of China (PBoC) and the Taiwan Central Bank of China (CBC) signed a memorandum of understanding (MoU) in August.
ANZ projects that renminbi deposits held in Taiwan could reach Rmb100 billion (US$16.1 billion) by the end of 2013, up from the Rmb21.5 billion held at offshore banking units as of November, following a recent trip to the country.
“Our recent conversations with clients indicate that many corporates and individuals are keen to open their RMB position at DBU. Typically, corporates will remit their onshore RMB to Taiwan through trade payments, which does not involve FX transactions,” Raymond Yeung, senior economist at ANZ wrote in report published January 17. “Treasurers of many Taiwan manufacturers find that a convenient way to manage their overall RMB positions, especially for those who have both payables and receivables.”
Demand is unlikely to be limited to corporate accounts, with retail demand for renminbi deposits also expected to be strong.
“…mass public see RMB as a substitute to high-yielding AUD. Many people would also consider converting their low interest-bearing TWD [Taiwanese dollar] holdings to RMB,” he said. “By our informal survey, we find that at least 75% of them would switch a portion of their TWD positions to RMB. The recent appreciation of the yuan will only increase the currency’s attractiveness.”
Source: CBC, Asiamoney
The exact date for the renminbi to start trading in Taiwan is still to be confirmed, pending a formal announcement from the CBC regarding renminbi clearing. However, ANZ expects that Bank of China Taipei – the official RMB clearing bank – will replicate the Hong Kong model and have direct access to the Shanghai market. In addition, RMB clearing will be priced against the US dollar rather than the Taiwanese dollar as the latter is circulating on the Mainland.
At the time of the MoU signing, the CBC said it would establish CNT as a new currency code to represent renminbi in Taiwan. This led to speculation that the CNT could trade at the different level to the CNH (offshore renminbi in Hong Kong and the rest of the world) but Yeung says this is unlikely to be the case.
“The exchange rate and interest rate should be in line with the overall offshore markets (i.e. CNH) unless the CBC imposes a large degree of capital controls limiting RMB flows (unlikely).”