The People's Bank of China (PBOC), the central bank, announced Tuesday that it has authorized the Bank of China (Hong Kong) Limited (BOCHK), to provide RMB cash settlement services to Taiwan.

An agreement had been signed between the PBOC and the BOCHK to allow the BOCHK to sign RMB contracts with Hong Kong branches of Taiwan commercial banks authorized for such exchanges by Taiwan authorities, said a statement on the PBOC website.

According to the agreement, the Hong Kong branches would then provide RMB cash supply and withdrawal services to their head offices in Taiwan, which in turn would offer RMB cash exchange services to local clients.

Currently, Taiwan banks can trade yuan at the Hongkong and Shanghai Banking Corporation (HSBC) and Bank of America in Hong Kong.

The new service could make travel across the Taiwan Strait more convenient, and lay foundations for a cross-Strait currency settlement mechanism and boost cooperation on currency administration, it said.

The clearing services could start in Hong Kong once all the parties involved were technically ready.

More negotiations were needed on the launch of RMB deposit, remittance and trade settlement services in Taiwan, said the statement.

Chinese mainland and Taiwan negotiators last month signed a landmark economic pact, the Economic Cooperation Framework Agreement (ECFA), which aimed to establish a systematic mechanism and enhance cross-Strait economic cooperation.