The Hong Kong Monetary Authority (HKMA) and the Bank of Thailand jointly announced yesterday the official launch of a new cross-border payment-versus-payment link between Hong Kong's US-dollar real-time gross settlement system and Thailand's baht-denomina
Through the system, Thai banks can utilise the link as an efficient and secure alternative to settle their US dollar and baht-denominated foreign-exchange transactions and as a reliable mechanism for mitigating forex settlement risk.
The HKMA earlier established a similar link with Malaysia and Indonesia. It is ready to consider establishing a yuan-baht link with Thailand, once demand is high enough.
The authority said the dollar-baht payment-versus-payment (PvP) link, which started operation yesterday, would eliminate settlement risk in forex transactions between the US dollar and the baht by ensuring the simultaneous delivery of US dollars in Hong Kong and baht in Thailand.
It said banks in Thailand could better manage their counter-party risks arising from dollar-baht forex transactions and enhance their operational efficiency in settling those transactions in a coordinated manner during Asian hours.
Banks in Hong Kong would find new correspondent banking opportunities of serving banks in Thailand. The link establishment was first announced on July 15 last year.
It will be operated in the Kingdom by the Bank of Thailand and in Hong Kong by Hong Kong Interbank Clearing Ltd, which is equally owned by the HKMA and the Hong Kong Association of Banks.
“This new PvP link provides a safer and more efficient arrangement for settling foreign-exchange transactions,” HKMA deputy chairman Peter Pang said.
“It is our US dollar RTGS system’s third cross-border PvP link in the Asian region. It has been built based on the proven model of the existing PvP links with Malaysia and Indonesia.
“The implementation of this link sets another excellent example of central-bank cooperation to provide solutions to enhance regional financial stability and meet market needs.”