By Erich Parpart
The Chinese yuan is becoming more and more important in world trade, so investors are well advised to use the currency in future trade and investment to lower the risk of fluctuations, the Bank of Thailand said yesterday.
Chantavarn Sucharitakul, assistant governor for the Financial Markets Operations Group, said the use of the yuan as a trade and investment currency was noticeably increasing because of the size and growth potential of the Chinese economy and Beijing’s policy to encourage the use of the yuan in world trade.
“Investors have more interest in using the yuan to trade and invest, as seen by the move of the United Kingdom, which has offered itself as the centre for trade that uses the yuan, or the Russians, who have agreed to use domestic currencies for their bilateral trade,” she said.
The use of a domestic currency for transactions between countries will provide more options in trading for other regions.
There are many factors that are needed for a currency to become a proper international currency, such as its flexibility, robust cash flow within the capital market and debt in the financial market in order to keep the cost of transactions as low as possible.
Britain’s decision to become the centre for trade using the yuan as a settlement currency – the yuan will be directly quoted within the China Foreign Exchange Trade System – is similar to what Australia, Malaysia, Russia and Thailand have done before.
It is also part of the Bank of Thailand’s plan, since it realised the important of the yuan in the future.
“The yuan has the potential to play a bigger part in the future and the central bank has encouraged Thai operators to start using more yuan as means for trade and investment and as a tool to manage exchange risk and to reduce the effect of fluctuations from the main currency,” Chantavarn said.