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Taiwan launches offshore RMB; paves way for CNT market

Taiwan’s central bank announced on Friday it has signed a deal on a clearing system for the renminbi that could create an offshore market for the currency on the island.

The new system will allow settlement of trade transactions between China and Taiwan directly in each others’ currencies, avoiding the need to first convert each into the dollar. The pact could pave the way for the development of a market in CNT – offshore renminbi traded in Taiwan – and allow the country to participate more fully in China’s efforts to internationalize its currency.

The move follows the development of the market in offshore renminbi in Hong Kong, CNH, and follows intense lobbying from banks in Taiwan eager to meet rising domestic corporate demand for the renminbi.

The deal also cements Taiwan’s position among financial centres, including London and Singapore, which are seeking to become leading trading hubs for offshore renminbi.

However, Weisheng He, Asia FX and rates strategist at Citi, poured cold water over Taiwan’s ambitions. He believes Taiwan does not have a clear competitive advantage over Hong Kong in the offshore renminbi business.

“Hong Kong has a larger pool of higher-yielding renminbi assets through dim-sum bond issuance or direct lending, through cross-border loans or foreign direct investment, to mainland entities, and this is critical in attracting the offshore renminbi liquidity,” he says.

“Given the political status, I don’t expect Taiwan can have the same pool of attractive renminbi assets as Hong Kong.”

For the time being, the development of that market will also be hampered by expectations, as reported by EuromoneyFXNews, that the renminbi will depreciate.