The Hong Kong unit of the Bank of China has been authorised to provide yuan cash settlement services for Taiwanese lenders operating in the city. Bankers said the announcement by the People's Bank of China showed Hong Kong had a role to play in the closer ties between the mainland and Taiwan after the two sides signed a landmark trade pact - the Economic Co-operation Framework Agreement - last month. It would also benefit Hong Kong's development as an offshore trading centre for the yuan, as Beijing continues the internationalisation of the currency, they said. Taiwanese government officials said the advantage of the scheme is that local banks will be able to procure yuan notes more cheaply for their retail customers and reduce the number of fake notes in circulation. At present, the island's banks buy yuan through Bank of America and HSBC which results in only a limited supply of banknotes being available in Taiwan. 'In the future, Bank of China (Hong Kong) will be able to supply us with new notes at a lower cost and the supply will be steady,' George Chou, deputy governor at the Taiwan's central bank, told Bloomberg. There is no cap on the amount of exchange between banks, but Taiwanese individuals will be allowed to exchange only up to 20,000 yuan (HK$22,900) at a time. 'The arrangement will facilitate travel across the Taiwan Strait and lay the foundations for a cross-strait currency settlement mechanism and enhanced cross-strait cooperation on currency administration,' the People's Bank of China said. The issue of when banks in Taiwan will be allowed to start taking yuan deposits and provide remittance and trade settlement services in yuan remains to be negotiated, the central bank said. He Guangbei, vice-chairman and chief executive of BOCHK, said his bank would comply with all regulatory requirements of the mainland and Hong Kong in preparing the new services, but had no clear timetable for the launch, only saying it would be ready as soon as possible. 'We trust that the service of supplying and repatriation of yuan cash notes for the Taiwan region will further facilitate exchanges ... across the strait, and strengthen economic and commercial ties between the two places,' He said. Financial Secretary John Tsang Chun-wah said the arrangement showed Hong Kong's established yuan clearing platform was able to facilitate cross-strait co-operation. 'This also underscores that Hong Kong, as a leading international financial centre in the region, can play an important role in cross-strait financial co-operation and development,' Tsang said. Monetary Authority chief executive Norman Chan Tak-lam said the mainland this month will further lift the restrictions on yuan transfer between Hong Kong bank accounts, allowing brokers to trade yuan shares and bonds for clients, and fund houses to issue yuan funds.