Development and internationalization of foreign currency bond market in Taiwan

In post-crisis Asia, the development of domestic bond markets is increasingly seen as one of the key requirements to strengthen the financial sectors of East Asian countries and to reduce their vulnerabilities to future financial crises.

In line with the regional development processes, the liberalization of investment barriers, legal reforms and improvement in the trading/settlement platforms should take place simultaneously in Taiwan. The system needs to step in to the international standards in order to participate in the global markets and establish connection with international capital flows.

Taiwan possesses one of the deepest domestic bond markets in Asia and has sufficient conditions to further develop the foreign currency bond market. The main barriers that have been delayed this process include the investment restrictions for domestic participants, the regulatory framework that limit the creation of an international market, the lack of international perspective by local participants, the incompatibility of local platforms with international standards and finally the inexistence of fiscal incentives for foreign investors.

This study approaches the issues related to the development of foreign currency bonds, focused on the internationalization of domestic bond markets. The structure presented herein include the review of domestic market background, actual situation, the problematic, reforms that should be taken place in detail as well as the process of how the market should be formed, concluding with the operational considerations to establish connectivity with the global markets under international standards.