The Hong Kong Monetary Authority (HKMA) and Bank of Thailand (BOT) jointly announced today the official launch of the new cross-border payment-versus-payment (PvP) link, which will facilitate the US dollar and Thai baht settlements between the two markets
Through the system, Thai banks can utilise the link as an efficient and secure alternative to settle their US dollar and Thai baht (THB) foreign exchange transactions and as a reliable mechanism for mitigating FX 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.
Under the agreement with Thailand, the link is established between Hong Kong’s US Dollar real time gross settlement (RTGS) system and Thailand’s Thai Baht RTGS system (BAHTNET).
This dollar-baht PvP link, which starts operation today, will eliminate settlement risk in foreign exchange transactions between the US dollar and Thai baht by ensuring the simultaneous delivery of US dollar in Hong Kong and Thai baht in Thailand. Banks in Thailand can better manage their counterparty risks arising from US Dollar-Thai Baht foreign exchange transactions and enhance their operational efficiency in settling those transactions in a coordinated manner during Asian hours. Meanwhile, banks in Hong Kong will find new correspondent banking opportunities of serving banks in Thailand.
The link establishment was first announced on July 15, 2013.
It will be operated in Thailand by BOT and in Hong Kong by Hong Kong Interbank Clearing Limited (HKICL), which operates the interbank clearing systems in Hong Kong, and 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. It is our USD 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," said Peter Pang, deputy chief executive of the HKMA.