Taiwan praises currency memo with mainland

Economic Daily News said in an editorial that direct currency clearing is a mutually beneficial move as it will help the mainland's drive to expand overseas use of yuan and at the same time consolidates Taiwan's position in the global financial system.

The newspaper added in another commentary that the memorandum amounts to offering the island a ticket to the club of off-shore yuan centers.

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.

According to a 2009 cross-Strait financial cooperation agreement, the currency clearing service is only applied to cash exchanges.

Currently, banks from both sides can choose clearing banks in Hong Kong or Macao to carry out currency settlements and liquidations. This takes a longer time and is more trouble, especially concerning the shipping of notes.

Also, lenders on the Chinese mainland and Taiwan can rely on correspondence banks located elsewhere to provide services for settlement and clearance of trade and investment across the Taiwan Strait.

Financial institutions from both sides have long called for a direct clearing system between banks across the Strait and for expanding the services on remittance.

The memorandum is believed to be of particular importance as cross-Strait trade and investment ties have developed rapidly in recent years.

According to official figures on the mainland, cross-Strait trade reached 160.03 billion U.S. dollars in 2011, marking a year-on-year increase of 10.1 percent.

Meanwhile, by the end of last year, the mainland had approved a total of 85,772 investment projects from Taiwan and the actual funds used reached $54.2 billion.

The memorandum will take effect in 60 days and the two sides are also working toward an eventual currency swap deal.

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.