The central bank on Friday said it signed an agreement with Bank of China's Taipei Branch to establish the branch as the yuan-clearing bank in Taiwan.

"Financial institutions across the Straits can choose to process yuan-denominated cross-border settlements through an agent bank or the clearing bank," the People's Bank of China said in a statement posted on its website.

Taiwan's central bank also on Friday announced rules for Taiwan's yuan business for domestic banking units, which sets the daily conversion limit for individuals at 20,000 yuan ($3,184).

Taiwan residents will be allowed to remit up to 80,000 yuan onshore daily, limited to current account transactions, and banks will be able to lend to individuals and local companies.

The local yuan business is expected to kick off around the Chinese New Year in early February, despite the fact that the central banks of the mainland and Taiwan have not signed a bilateral currency-swap agreement yet.

"Our recent client visits indicate that Taiwan's corporate and individual investors have a strong appetite for expanding their yuan positions given the low yield of the local currency," said the Australia and New Zealand Banking Group on Friday in a report.

ANZ added that the opening of the Taiwan market may tighten the overall liquidity of the yuan offshore market in Hong Kong in the short term, but the presence of a clearing bank in Taipei will provide access to onshore yuan through trade-related payments and settlements, easing the overall offshore market liquidity in the medium-term.

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