Thailand to gain from IMF's yuan move

 

Mathee Supapongse, deputy governor of the central bank, said the yuan was now one of the world’s five major currencies for the IMF’s SDR. This will boost the unit’s role in international trade and investment, resulting in its wider international acceptance.

 

The BOT has gradually invested in yuan-denominated-bonds for diversification of international-reserve management while promoting the Chinese currency as an alternative for payment since 2010, he said. In addition, the BOT extended a bilateral swap arrangement worth 70 billion yuan (about Bt390 billion) with China, which appointed Industrial and Commercial Bank of China (Thai) as a clearing bank in Thailand.

 

He said the yuan would gain popularity as an international unit for investment after China’s relaxation of capital controls, while investors might need to readjust their investment portfolio and the hedge for SDR on a gradual basis.

 

The yuan’s inclusion in the SDR basket is positive for Thailand since China is the country’s largest trading partner, according to the Commerce Ministry.

 

Chutima Boonyapraphasara, permanent secretary of the ministry, said the move should facilitate more trade growth between Thailand and China, with China-bound Thai exports accounting for 11 per cent of the Kingdom’s total export value.

 

“Traders would shift to use more Chinese yuan, as they will not have to pay for foreign-exchange fees converting into the US dollar or other currencies,” she said.

 

Nopporn Thepsithar, president of the Thai National Shippers Council, said some traders who do a lot of business with China might negotiate with their trading partners to use the yuan in the near future.

 

The yuan internationalisation will help guarantee that it plays a more significant role in global trade and investment, he said.

 

On Monday, the IMF completed its five-yearly review of the basket of currencies that make up the SDR and included the Chinese unit as one of the five currencies for the first time after concluding that it met all existing criteria.

 

The yuan will represent 10.92 per cent of the SDR basket, while the US dollar’s weight is reduced from 41.90 per cent to 41.73 per cent; the euro’s weight from 37.40 per cent to 30.93 per cent; the Japanese yen from 9.4 per cent to 8.33 per cent; and the British pound from 11.30 per cent to 8.09 per cent.

 

Market consensus continues to see the yuan weakening further next year to 6.6 per US dollar to reflect economic fundamentals, according to Kasikornbank.

 

Fitch Ratings said the inclusion of the yuan in the SDR currency basket would have no immediate significant effect on the sovereign credit profile.

 

IMF chief Christine Lagarde called the decision “an important milestone in the integration of the Chinese economy into the global financial system”.

 

The IMF’s “currency basket” is a weighted daily average of the market exchange rates of the top currencies, which is more stable than any of the individual major currencies alone. The average is used as a measure of value for the IMF’s “special drawing rights,” which quantify how much reserve currency each of the 188 member countries can call on.

 

Lagarde also called the vote a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems, according to Deutsche Presse-Agentur.