Thai investors told of yuan's potential in world trade
July 19, 2014 00:00
By Erich Parpart
The Bank of Thailand is encouraging Thai investors to gain a greater understanding on the use of Chinese yuan as a means for trade and investment.
The move comes on the back of the yuan’s apparent increase in importance in world trade and its potential to become an international currency.
Chantavarn Sucharitakul, BOT assistant governor for the Financial Markets Operations Group, said at the central bank’s seminar yesterday that Beijing was rapidly reducing regulations regarding the use of its currency to promote the use of the renminbi in transactions in the region.
She said the BOT believed that the use of the yuan would provide more options in term of payments when doing business with China.
“Presently the use of Chinese yuan in Thailand is not widespread since only 1 per cent of the total 14 per cent of Thailand’s trade activities with China is traded by using RMB [renminbi – another name of the yuan],” she said.
“However, this rate is increasing fast, and therefore Thai investors should learn how to use the currency as a means for trade and investment in order to provide them with additional trading channel because the yuan’s importance and popularity will increase in the future even though it is not widely accepted and fully liberated at the moment,” she said.
Chantavarn said that an example of China’s policy to remove some of the regulations on the yuan was to relax its flow by allowing it to move within a range of plus and minus 1 per cent to plus and minus 2 per cent.
She said that this meant there was more room for trade and investment via the yuan.
Maytee Phanachet, capital markets product management head at Kasikornbank, said that internationally the pace of the yuan’s internationalisation had been gradual but consistent.
And since its launch in 2009 (before this the yuan had almost no exposure in international markets), he said more and more businesses had been allowed to use the yuan in the foreign exchange market and the market’s infrastructure had been developed.
This resulted in the yuan’s daily turnover in the foreign exchange market going from virtually zero in 2009 to $720 yuan in 2013.
He revealed that Beijing currently had a bilateral swap agreement (BSA) with 24 countries which amounted to 2.59 trillion yuan, with Hong Kong its biggest swap partner (400 billion yuan).
The benefit of BSA was that it helped support the overall depth and liquidity of the currency.
“For the global trend of surging RMB settlement, the yuan has surged to become the second most important in term of international trade currency with L/C [letter of credit],” he said.
“And in terms of overall usage in capital accounts, it is making rapid progress – from a rank of 20 in 2009 to No.8 in October last year.
“And now according to the latest SWIFT [the Society for Worldwide Interbank Financial Telecommunication] report in May, the yuan has made its way up to No. 7 [1.43 per cent of world payments by currency value] already.”
The yuan has become the eighth most actively traded currency, according to latest survey by the Bank for International Settlements (BIS) on foreign exchange turnover in 2013.
Maythee said currently there were six clearing centres in the world, including the biggest in Hong Kong and the newest in Frankfurt.
He said there were three countries which had signed a memorandum of understanding with China and these deals would increase the presence of the yuan in these countries while the increasing number of free trade zones being approved by Beijing emphasised the commitment of the Chinese government to internationalise and liberate the yuan.
When Thai importers and exporters used the yuan in transactions with Chinese counterpart they got a lower price since the Chinese operator had less foreign exchange risk.
Thai importers would also be able to trade with small and medium enterprise in China as some Chinese SMEs traded using US dollars.
Maythee said Thai exporters would also benefit from a more stable exchange rate and faster payments from Chinese importers since it was easier for them to acquire the yuan and there was no need for them to have a SAFE quota for letter of credit that was over 90 days.
The Kingdom’s trade with China had increased from US$57 billion in 2011 to $65 billion in 2013.
However, he said the use of the yuan might not benefit all companies since there were obstacles such as a lack of preparation from the trade counterpart, who still preferred to the dollar in transactions, and the lack of clearing centres in the country.
Therefore, apart from the promotion of knowledge the BOT also plans to promote the use of yuan by preparing basic infrastructure to support this, pursuing a BSA deal with Beijing, and pushing to have a direct quote in exchange of the baht and the yuan in Kunming and Yunan.