China provides SWIFT answer for global payments

At the moment the overwhelming majority of international payments go through SWIFT, which provides secure messaging services for global banks. This is complemented by the New York-based Clearing House Interbank Payments System (CHIPS), which processes 95 per cent of international dollar payments. By putting in place its own international payments system and clearing house based in Shanghai, China will both establish the yuan as a leading global currency and support Shanghai’s goal to become a global financial hub.

The use of the yuan in global payments seems to be accelerating. In the year to the end of March, yuan payments by US companies rose by over 300 per cent while in Singapore they rose by 375 per cent. 

Despite China being Thailand’s most important trading partner, Thai companies are not adopting the yuan for trade so quickly, as only about one per cent of our trade is settled in yuan. There are various reasons for this. In the past, the Chinese counterparty often chose to be paid in dollars to hedge against their currency exposure and to get around Chinese capital controls and regulations, while the limited depth and liquidity of the Chinese currency was another disincentive.

However, all these issues are now being addressed. Regulations have been eased, bilateral swap agreements have been signed with many countries and global clearing houses for the yuan have been established. Many yuan-denominated financial instruments have also been developed which can be used to hedge currency exposure. All these measures will greatly enhance the depth and liquidity of the yuan in global trade.

The Bank of Thailand wants Thai companies to use the yuan more and is working with Chinese counterparts to eliminate any remaining difficulties. Discussion on the appointment of a yuan clearing house in Thailand is also believed to be underway. Hopefully, this will be concluded soon.

There are many benefits for Thai companies in using the yuan for trade with China, such as reduced costs and counterparty risks and enhanced business opportunities. I would therefore encourage Thai companies and entrepreneurs, if they haven’t done so already, to explore the possibility of using the yuan as the settlement currency with their Chinese counterparts.

 

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