The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.
Yuan reserves included in reserves portfolio
Taiwan's central bank is holding yuan in its foreign exchange reserves portfolio, governor Perng Fai-nan said yesterday in recognition of the growing globalisation of the yuan and the importance of cross-strait trade.
Trade and financial ties on both sides have gathered steam since last year after a yuan clearing settlement deal was signed. Taiwan aims to become an offshore yuan trading hub, like Hong Kong and Singapore.
"There is a realistic need to do so. China has the biggest [foreign exchange] reserves in the world. Its credit rating is good," Perng told parliament, saying the central banks of 11 countries had added the yuan to their portfolios.
The mainland is Taiwan's biggest export market and, according to Perng, cross-strait trade has reached US$160 billion.
Some analysts welcomed the inclusion of the yuan in Taiwan's reserves.
"China is becoming more open in financial markets. [The yuan] will become one of the world's major currencies in the next 10 to 20 years," said analyst Andrew Tsai of KGI Securities in Taipei. "It is better [for Taiwan] to do it sooner rather than later."
Perng declined to give details on the size of the yuan holding. Taiwan has the world's fourth-biggest foreign exchange reserves, standing at US$409.4 billion at the end of August.