Central Bank mulls yuan investments

China is a part of the central bank's investment strategy because it realises the yuan will grow more influential in the global financial market and someday reach the status of an international currency, Assistant Governor Suchada Kirakul said yesterday.

Closer cooperation will help facilitate trade and investment between the two countries. Thailand will also need channels of investment in yuan when trading volume, delivered in that currency, with China expands.

Yuan assets will help the Bank of Thailand (BOT) diversify its investment portfolio. The Chinese currency will also likely move in the same direction - up - with the baht.

However, the Chinese assets could not be counted among Thailand's international reserves, because the yuan is not yet convertible, which is a requirement for an international reserve currency.

That means the central bank's bottom line would not gain from a revaluation of the Chinese currency.

"But it can benefit our books' overall asset value. We'll also earn a good return, because interest rates in China are higher than in the domestic market," Suchada said.

The International Monetary Fund said a convertible currency must be a one that can be immediately converted into any major currency or other convertible ones.

Investing in Chinese securities requires the permission of the BOT's board and the permission of the Chinese government to be registered as a qualified foreign-institutional investor.

Investment also requires a certain budget, although the central bank has invested in yuan assets before through the Asian Bond Fund.

The BOT understands there is investment risk involved, particularly the yuan's non-convertibility. It will only repatriate returns from the investment, not withdraw the principal entirely.

The central bank is also studying the impact of the bilateral swap agreements that China has signed with six countries and territories.

It is contemplating a similar agreement with China, in order to facilitate trade between the two countries, particularly when volume escalates.