Limited New Taiwan Dollar-Renminbi Exchange Begins

UNCLAS TAIPEI 004085

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SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON PREL TW CH
SUBJECT: Limited New Taiwan Dollar-Renminbi Exchange Begins
in Kinmen and Matsu



1. (SBU) Summary: Taiwan implemented a trial program
allowing new Taiwan dollar (NTD) and the PRC's renminbi
(RMB) exchange services in Kinmen and Matsu on October 3.
This is a small step that was approved only after a long
delay. However, it may be an indication of further
financial cross-Strait liberalization. End summary.


2. (U) On the morning of September 28, Premier Frank Hsieh
announced that banks in Kinmen and Matsu, two small islands
just off the coast of the PRC's Fujian Province, would be
allowed to provide NTD-RMB exchange services on a trial
basis. The program was implemented on October 3. The cross-
Strait currency exchange will be subject to a limit of
20,000 RMB per transaction and per customer. The currency
exchange services will be available only to travelers who
have entered Kinmen or Matsu through the "mini links," which
connect those two islands by ferry with the ports of Xiamen
and Fuzhou respectively. Eligible travelers must show the
entry record in their travel documents as well as their
tickets.


3. (U) All four banking institutions on Kinmen and Matsu
have obtained cross-Strait currency exchange licenses from
the CBC. These are Bank of Taiwan, Land Bank of Taiwan,
Fuhwa Bank, and Kinmen Credit Cooperative Association. They
are permitted to set their own NTD-RMB exchange rates, which
they must post, in the bank. The CBC does not set any limit
on margins between buying and selling rates. The three
banking institutions may go to Bank of America or HSBC to
settle their exchange transactions.


4. (SBU) A banking official told AIT/T that the PRC's
central bank, the People's Bank of China (PBC),had
delivered RMB 20 million worth of brand new notes to Bank of
American and HSBC. He indicated that the delivery of an
unusually large volume of new notes on a single day could be
a PBC endorsement of the new policy.


5. (SBU) The banking official also reported that because of
Typhoon Longwang, banks in Kinmen had been closed on October

3. Banks in Matsu conducted only five exchange transactions
that day. Some customers appeared to be interested only in
obtaining a souvenir of the first day of legal exchanges.
The volume of currency exchanged the following day was much
higher pushing the total value for both days to 739,600 RMB.

6 (SBU) Comment: The Kinmen and Matsu NTD-RMB currency
exchange program has been awaiting approval from the
Mainland Affairs Council for more than a year. In a January
visit to Kinmen, a local bank officer told AIT econoff that
his branch had completed training and was ready to implement
the program in July 2004. The program is limited, but it is
an important step. It provides a legal exchange mechanism
for underground exchanges that were already common on the
islands. More importantly, it could be a sign that the
Taiwan government may be willing to move forward soon on
other cross-Strait financial liberalization. End comment.

PAAL