萬國法律事務所

Taiwan’s Central Bank (CBC) and China’s People’s Bank (PBC) recently signed an MOU regarding currency settlement that is scheduled to take effect 60 days after the signature date. The CBC’s Governor has stated that signing the MOU is just the first step, and that the next step will be both the CBC and PBOC selecting designated banks to handle currency settlement (Settlement Banks). At the same time, the CBC also plans to establish a Currency Swap structure for NTD and RMB with Mainland China. Under the Currency Swap structure, RMB can be a foreign reserve of CBC and Taiwanese people will be able to purchase Government Bonds issued by China.

This MOU is a significant milestone in financial transactions between Taiwan and China. Specifically, there are two important contents in the MOU. First, the MOU enables Taiwan banks to handle RMB settlement such as for deposits, loans, remittances and investments. Taking remittance as an example, under this MOU, direct remittance from Taiwan to China will be available and it will no longer be necessary to change NTD to USD in advance. Secondly, the MOU establishes a cooperative management relationship between Taiwan and China’s Settlement Bank, such as a contact mechanism for information exchanges, business investigations and risk management.

The MOU was signed on 31 August 2012. However, the CBC’s Governor stated that the date of execution of this MOU is still unknown because although the MOU was executed, it is still not certain when the Settlement Bank will be established. The CBC’s Governor also pointed to Hong Kong as an example. The Hong Kong Monetary Authority and PBC signed an MOU on 19 November 2003 and Hong Kong started providing RMB settlement services on 25 February 2004. Even though it is uncertain as to whether Taiwan’s Settlement Bank can be decided upon by the end of 2012, the CBC’s Governor said that CBC will endeavor to continue negotiating with China.