August 21, 2012 / 8:07 AM / 5 years ago

Taiwan may open forex business to brokers as yuan looms

TAIPEI, Aug 21 (Reuters) - Taiwan is considering allowing brokerages into the tightly controlled foreign exchange business in a possible loosening of the island's decades-old currency controls as it eyes a bigger role in the international expansion of China's yuan currency.

Taiwan's cabinet is studying the proposal in response to requests from brokers to help them expand in the yuan business, chairman Chen Yuh-Chang of the Financial Supervisory Commission (FSC) told reporters at a briefing on Tuesday.

"This is a completely new business, especially when they start to do underwriting for yuan products in future," he said, adding no timetable or details were yet available.

Taiwan's central bank maintains strict control over the convertibility of the island's dollar, limiting foreign exchange business to banks under a strict reporting regime designed to keep the currency stable for the island's exporters and discourage speculation.

However with China's currency becoming more international and with China now Taiwan's top trading partner, the island's financial institutions are clamouring for an entry into the yuan business, mindful of how their Hong Kong rivals have a head start.

After some three years of talks, Taiwan and China are close to signing a memorandum of understanding on a first step: allowing settlement of trade transactions directly in each other's currency, avoiding the current system of first having to convert either currency into U.S. dollars.

Such an agreement would give a boost to Taiwan's financial institutions in their dealings with China, helping them into a growing market to offset a mature, slow growing one at home.

Last month the Taiwan head of China's Bank of Communications (BoComm), one of only two mainland banks with branch status in Taiwan, said he thought the island was in a good position to become a centre for offshore trading in the yuan. . (Reporting by Faith Hung; editing by Jonathan Standing)

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