Saturday, June 20, 2009

Bank of Thailand considers swap pact with China


The Bank of Thailand is conducting a study into the possibility of a swap agreement with China aimed at diversifying the currency risk of exporters and importers, its governor said yesterday.

If a currency-swap agreement is signed, Thailand will be able to use yuan or baht to settle some of its trade with China, rather than just the US dollar.

Argentina, Indonesia, Belarus, South Korea, Malaysia and Hong Kong have already signed currency-swap agreements with China. The size of the agreements, however, is small when compared with total trading volume, and there have been no transactions as yet.

Such agreements allow exporters and importers to settle trade deals in their respective local currencies instead of in the greenback.

Governor Tarisa Watanagase said the central bank was studying the size of the Kingdom's trading volume with China, as well as the size of credit lines.

The study will be finalised after discussions with the private sector about the need for such an arrangement, and the swap agreement would have to be approved by Parliament in accordance with the Constitution, she said.

"It will not make any progress if the private sector wants to [continue to] pay for trades in dollar terms," she added.

Tarisa said currency diversification would be beneficial to the Kingdom. Moreover, no disadvantages can be seen in having such payment flexibility.

The governor said that while trading in yuan was likely to escalate, it would not replace the US dollar and become an international currency in the short or medium term.

"It could be an international currency in the long term. The dollar will continue to be used more widely, deeply and with greater acceptance," she said.

Meanwhile, Tarisa said, the central bank plans to create risk-management tools to help exporters and importers cope with currency volatility.

For example, exporters could use purchase orders and insurance from the Export-Import Bank of Thailand when seeking loans from commercial banks.

Tarisa insisted that the central bank would continue to reduce the volatility of the baht and keep it in line with other regional currencies in order to maintain the Kingdom's competitive edge.

It yesterday discussed the currency issue as well as liquidity with the Federation of Thai Industries (FTI), the Thai Chamber of Commerce, the Association of Thai Travel Agents and the Thai Gold Card Importer and Exporter Association.

FTI chairman Santi Vilassakdanont said the private sector had asked the central bank to keep the baht in line with competitors' currencies. It has recently been 1 per cent stronger than other regional currencies.

Pongsak Assakul, vice chairman of the Thai Chamber of Commerce, said the Kingdom had lost 1.4-3.6 per cent of its competitiveness since the end of last year, when considering the nominal effective exchange rate and the real effective exchange rate.

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