The Central Bank of Taiwan has plans to allow non-deliverable forwards (NDFs) in Taiwan’s financial market after a hiatus of 16 years.
NDFs are foreign exchange contracts commonly used to hedge foreign currency risks in emerging markets where local currencies are not freely convertible.
At the time of the Asian financial crisis in 1998, the governor of the Central Bank, Perng Fai-nan announced the closing of NDFs in fear that they would disrupt the stability of foreign currency emerging markets.
After a hiatus of 16 years, Perng has announced plans to open up NDFs again, but only to offshore financial centres in the beginning stage. Academic and financial experts said on Thursday that they are optimistic about the decision which they believe will benefit Taiwan’s banking industry.
Finance professor at National Chengchi University Norman Yin said that Taiwan should open up its markets for all financial instruments if it wants to become the offshore centre for the Chinese currency or renminbi. Yin said low risk financial instruments such as NDFs are commonly used in the global financial market.