China's central bank and the Bank of China's (BOC) Taipei branch signed a clearing agreement on Friday, paving the way for banks from the mainland and Taiwan to conduct cross-Strait yuan settlement through direct clearing.

The agreement formally affirmed a designation of the BOC branch as the clearing bank for yuan transactions in Taiwan last month and gave detailed rules on the operations, the People's Bank of China, China's central bank, said in a statement.

The mainland and Taiwan signed a currency clearing memorandum in August 2012, with a view to establishing a cross-Strait currency clearing mechanism.

Under the memorandum, the two sides will each designate a clearing bank to carry out currency settlements and liquidations for the other side. The clearing banks will be able to handle cash exchanges of currencies from the two sides.

Taiwan's monetary authorities in September designated Bank of Taiwan's Shanghai branch as the clearing bank to handle New Taiwan dollar transactions on the mainland.

The memorandum was hailed as "another important step for cross-Strait financial cooperation" by people from both sides of the Taiwan Strait.

According to a 2009 cross-Strait financial cooperation agreement, the currency clearing service is only applied to cash exchanges.

Currently, banks from both sides can choose clearing banks in Hong Kong or Macao to carry out currency settlements and liquidations. This takes more time and is more troublesome, especially concerning the shipping of notes.

Also, lenders on the Chinese mainland and Taiwan can rely on correspondence banks located elsewhere to provide services for settlement and clearance of trade and investment across the Taiwan Strait.

Financial institutions from both sides have long called for a direct clearing system between banks across the Strait and for expanding the services on remittance. Endi