Taiwan's authorities, experts and media have praised a direct currency clearing memorandum with the Chinese mainland announced simultaneously in Beijing and Taipei on Friday.

 

The deal, signed by the monetary authorities of the mainland and Taiwan, calls for direct currency clearing between the two sides, a move expected to reduce trade costs and risks of exchange rate fluctuations.

 

Taiwanese leader Ma Ying-jeou said shortly after the announcement that the signing of the memorandum would greatly help cross-Straits financial cooperation.

 

He added the deal testifies to mutual trust between Taiwan and the mainland.

 

For Taiwan, the benefits of direct currency clearing with the mainland and the prospects of becoming an off-shore yuan in the future are multi-faceted.

 

Taiwan's consumers and companies have parked savings of up to 31 trillion New Taiwanese Dollars ($1 trillion) with banks and other financial institutions. With direct cross-Straits currency clearing, these funds can be at least partly converted into yuan and thus enjoy higher returns as the benchmark interest rates on the mainland are currently higher than those in Taiwan.

 

Chang Chinyuan, a spokesman for SinoPac Holdings, said that when financial institutions offer yuan-denominated financial services and products, Taiwanese people will have more investment options and pensioners can expect higher returns on their savings.

 

Taiwan's media have also largely supported the cross-Strait currency clearing memorandum, eyeing greater financial cooperation between the two sides in the future.

 

Meanwhile, the Commercial Times noted that direct currency clearing will greatly reduce cross-Strait trade costs, and yuan-denominated financial services and products in the future will become a new source of revenue for the island's financial sector.

 

The memorandum with Taiwan is part of a massive plan by the Chinese mainland to expand the use of its currency overseas.

 

It has signed numerous currency deals with trade partners across the world, including the Republic of Korea, Japan, Singapore and Britain, to facilitate cross-border trade and investment.

 

Many economies are eager to ink currency deals with the mainland to further take advantage of the trade and investment opportunities in the country, which is the world's second-largest economy and has maintained strong economic growth for more than three decades.

 

These deals are also expected to reduce the world's heavy reliance on the US dollar.

 

The greenback remains the dominant currency of the global reserve system and is widely used in trade and financial deals around the world, but it has also seen increasing volatility as the United States has struggled to emerge from a severe financial and economic crisis in the past five years.

 

 

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