Thailand Considering China Currency Swap Agreement

[churchill]

Aug. 31 (Bloomberg) -- Thailand is studying a possible currency swap agreement with China that would make it easier for exporters to settle some of their trade in the two currencies, Bank of Thailand Deputy Governor Atchana Waiquamdee said.

There is no “formal” discussion with China yet, Atchana said in an interview in Bangkok today. While Thailand has been diversifying from U.S. dollar assets in its reserves in the past few years, the dollar isn’t going to be replaced as the world’s reserve currency, she said.

“We are in the stage of studying it to see if it is beneficial for the both of us,” she said, adding that a swap agreement isn’t intended for liquidity management. “You can’t say that just because you signed it, you are going to see a surge in trade relations.”

China has provided about 650 billion yuan ($95 billion) to countries including Argentina and South Korea since December through currency swaps to encourage the currency’s use in global trade and finance. The dollar’s status as the world’s leading reserve asset has been challenged as China, Russia, India and Brazil called for a more diversified system.

Thai central bank Governor Tarisa Watanagase said in June that while there is a “trend to use yuan,” nations have to consider its “depth, width and the acceptability” before it can become an international currency. The Chinese yuan isn’t fully convertible.

Diversifying Reserves

China has expanded yuan settlement agreements from border zones to its largest financial centers, including Shanghai and Guangzhou, and the program is being rolled out across Malaysia, Indonesia, Brazil and Russia. Its central bank first brought up the concept of a supranational currency to replace the dollar in reserves in March. The nation has the world’s largest reserves at $2.13 trillion.

The U.S. currency’s share of global central banks’ foreign reserves increased to 65 percent in the first three months of this year, from 64 percent in the previous quarter, according to the International Monetary Fund. The dollar’s share has fallen from 72.7 percent in 2001.

Thailand’s foreign-exchange reserves totaled $125.2 billion in the week ended Aug. 21.

“Every central bank has been diversifying for a long time, at least four to five years ago,” the Bank of Thailand’s Atchana said. “Still, you have to accept that the dollar is going to be a reserve currency for quite some time. You don’t have any alternatives.”

Won’t Peg

The yuan traded at 6.8313 per dollar in Shanghai today, having been kept around that level by the central bank since July 2008 after a 21 percent gain in the previous three years. The baht, which gained 2 percent this year, was at 34 as of 3 p.m. in Bangkok, according to Bloomberg data.

The Bank of Thailand won’t try to maintain a pegged currency, even though it will continue to step into the foreign- exchange markets to temper baht volatility, Atchana said.

“As long as the baht doesn’t over or undershoot, we try not to step in,” she said. “We have to believe that the market mechanism works. With a surge of supply of dollars coming through the current account, it may not be possible to keep the exchange rate fixed.”

Investment flows from abroad and a current-account surplus are putting pressure on the currency to appreciate. Overseas investors bought $974 million more Thai stocks than they sold this year. The baht has traded in a range of 33.92 to 34.13 per dollar this month.

The current-account surplus, the broadest measure of trade, rose to about $11.6 billion in the first half of the year from a deficit of $200 million last year, Atchana said.

http://www.bloomberg.com/apps/news?pid=206...id=a0PGuALarBn8

[JimmyTheMook]

The US $ is simply printed in "faith" these days and in reality it has little more value than toilet paper.