US embassy cable - 05TAIPEI4085

UNCLAS TAIPEI 004085 
 
SIPDIS 
 
STATE PLEASE PASS AIT/W AND USTR 
 
STATE FOR EAP/TC, EAP/EP 
 
USTR FOR WINTER AND WINELAND 
 
USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER 
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT 
TREASURY FOR OASIA/LMOGHTADER 
TREASURY PLEASE PASS TO OCC/AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN 
 
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