Taiwan, next major RMB offshore center?

Taiwan, while not famous as a financial hub, is being considered as a candidate to become the next major renminbi (RMB) offshore center along with Hong Kong.

Taiwan's vast economic and trade ties with the Chinese mainland give the island a major advantage as an offshore center for RMB transactions, Peter Sands, group chief executive officer of Standard Chartered Bank, said at the Taiwan Economic Summit on Thursday.

Taiwan is now the second major market after Hong Kong that is able to clear transactions in RMB, or the yuan, as the Chinese mainland has stepped up efforts to foster the global use of the currency.

In February, a total of 46 designated Taiwanese banks launched their yuan business after signing currency clearing agreements with the Bank of China's Taipei branch, the clearing bank for yuan transactions in Taiwan.

Initial appetite for RMB has been voracious, with over 1.3 billion yuan (206.35 million U.S. dollars) going into retail accounts on the first day Taiwanese banks began accepting deposits.

The direct access to clearing brings immediate benefit to the business of trade, according to analysts. Taiwanese companies are now able to invoice and settle their mainland-related trade directly in yuan, rather than swapping from the yuan into U.S. dollar and then to the New Taiwan dollar.

This will cut down transaction costs and reduce foreign exchange volatility, Leslie Koo, chairman of Taiwan Cement Corp., said at the one-day summit. Koo's company has 60 million tonnes of cement production capacity on the mainland and he plans to increase it to 100 million tonnes by 2016.

According to a Standard Chartered report, Taiwan is expected to accumulate an RMB liquidity pool of between 100 billion and 150 billion yuan at the end of 2013.

With more and more Taiwanese financial institutions and enterprises clearing transactions in the yuan, the island will have great potential to develop yuan-denominated products, Sands said.

Investable assets are already at work. Chinatrust Commercial Bank, Taiwan's leading issuer of credit cards, sold the first yuan-denominated bonds in the island last month. The lender's one billion-yuan notes, which will mature in 2016, are sold at a yield of 2.9 percent.

However, analysts said there are still many problems needing to be solved, such as further removing policy restrictions and introducing more investable products.

The mainland is now Taiwan's largest trade partner, with export and import volumes totaling 168.96 billion U.S. dollars in 2012. Tens of thousands of Taiwanese companies do business on the mainland.