Taiwan's financial authorities on Wednesday announced they had given approval to local banks to engage in renminbi-denominated non-delivery forward (NDF) services, the Beijing-based China News Service reported.

Observers said the move was intended to cope with the Chinese mainland currency's increasing stature in economic affairs and the local business community's growing ties with the mainland.

An NDF purchase or sale is an instrument to hedge risks brought about by changes in a currency's exchange rate. An NDF agreement is a contractual obligation to compensate the affected counterpart in the event of any difference between the market rate on any given date and the agreed rate, taking into account the contracted amount of the currency.

At no time is there physical delivery of the currency.

(China Daily August 8, 2003)