ON FEBRUARY 6th, a few days before the Chinese new year, banks in Taiwan offered something new to their customers: deposit accounts in China’s currency, the yuan. The banks were full of seasonal generosity, offering much better terms than depositors normally enjoy. At Bank SinoPac, customers without two yuan to rub together can open an interest-bearing account with only one.


Deposit-taking and trading in yuan was made possible by a clearing agreement, signed in August between China’s central bank and its counterpart in Taipei (which one mainland newspaper referred to as Taiwan’s “central bank”, the quotation marks reminding readers that China bitterly disputes Taiwan’s claims to sovereignty, in monetary matters or anything else). That deal is only the latest example of China’s unconventional efforts to promote the use of its currency beyond its borders, even as it maintains controls on capital flows across them.


.
These efforts began in earnest in July 2009 with a pilot scheme allowing a few Chinese firms to buy imports with yuan and sell exports for them. The yuan’s foreign career then took off in August 2010 when some Hong Kong banks were permitted to invest offshore yuan in the mainland’s higher-yielding bond market, thus giving them an incentive to hold the currency. Since then, the government has alternated between easing outflows of yuan from the mainland and easing inflows in the other direction. The yuan’s international flows have zigged and zagged.



So have its fortunes. In its early life the offshore yuan (known unofficially as the CNH) was more expensive than its onshore equivalent. The premium, which peaked at 2.6% in October 2010, reflected the eagerness of outsiders to hold an otherwise inaccessible asset that was expected to appreciate.
.
.



Borrowers took full advantage of this expectation, selling yuan-denominated “dim sum” bonds in Hong Kong for high prices and yields as low as 0.6%. But signs of trouble arrived in the autumn of 2011, as global financial turmoil prompted foreigners to dump emerging-market assets of all kinds.


The CNH premium turned into a sizeable discount. By the end of that year yuan deposits in Hong Kong began to fall (see chart). Then, in February 2012, the yuan stopped rising against the dollar, removing a big reason for offshore investors to hold the currency.


The market for dim-sum bonds changed from a seller’s to a buyer’s market. Issuance slowed and yields began to converge with similar bonds in the mainland. The world’s embrace of the yuan began to look provisional, not inevitable.


But the CNH can enter the Chinese new year with revived optimism. China’s currency has resumed its stately appreciation against the dollar, climbing by 2.5% since its July trough. Hong Kong’s yuan deposits have grown steadily since September (although they have yet to regain their 2011 peak) and the CNH is once again trading at a premium to its onshore cousin. And offshore investors have gobbled up $1.9 billion of yuan-denominated bonds so far in 2013, according to Dealogic, a data firm, up by 73% on a year earlier.


The question now is whether inflows or outflows will predominate in the year ahead—will the offshore yuan zig or zag? Taiwan’s entry onto the stage should hasten outflows. The country’s exporters enjoy the world’s biggest trade surplus with China. If they decide to settle much of their trade in China’s currency, their new deposit accounts in Taipei could fill up quickly.


However, inflows should also grow. China’s government is opening up new routes for offshore yuan to return to the mainland. Last month it finished dividing up a quota of 70 billion yuan ($11 billion), which qualified foreign firms will be able to invest in the mainland’s shares, exchange-traded funds and bonds. China’s securities regulator has said that another 200 billion yuan will be allotted soon.


A smaller but more interesting back channel also opened last month. Fifteen Hong Kong banks lent a total of 2 billion yuan, raised offshore, to businesses incorporated in Qianhai, a 15-square-kilometre (5.8-square-mile) district of Shenzhen just across the border from Hong Kong. At the moment the bay-side territory is little more than a building site. But it aspires to become a hub for professional services, offering waterfront living, low taxes and proximity to Hong Kong.


To help Qianhai fulfil that vision, its businesses can now borrow yuan from offshore banks. And they can do so at whatever interest rate the market will bear, even if it falls below the regulatory floor imposed on other loans in China. Since offshore rates are lower than onshore ones, the appeal is obvious.


Indeed, the appeal is potentially limitless. What is to stop every firm in China having a toehold in Qianhai so as to raise cheap funds for use elsewhere in the country?


During the pilot phase the lending will be subject to “stringent requirements, monitoring and reporting”, explains John Tan of Standard Chartered, one of the 15 banks involved. The loan amounts are subject to a quota. And the local and national governments are still thinking about how to ringfence the funds to prevent them escaping to other parts of the country.


Mr Tan is in any case confident Qianhai firms will want their money to stay where it is. There is plenty to keep the funds busy.


A new “Manhattan” must be conjured up, including offices, homes, schools, hospitals and landscapes. If it happens, Qianhai will be the first town that CNH built.