InfoQuest, (April 05, 2019) -- Ms. AlisaraMahasandana, assistant governor of the Central Bank of Thailand (BOT), revealed the progress in pushing for local currency payment in ASEAN members. Central banks of Indonesia, Malaysia, the Philippines, and Thailand signed documents in pushing for local currency payment, with contents including:
1) Bank Indonesia (BI, the central bank of Indonesia) and BOT agreed to make feasibility study on expanding the scope of local currency payment mechanism.
2) Governor of the Bangko Sentral ng Pilipinas (BSP, the central bank of the Republic of the Philippines) and governor of BI signed the letter of intent for establishing Peso and Rupee payment mechanism.
3) Governor of BSP and governor of Central Bank of Malaysia signed the letter of intent for establishing Peso and Ringgit payment mechanism.
4) Governor of BSP and governor of BOT signed the letter of intent for establishing Peso and Baht payment mechanism.
The signing of letters of intent for establishing local currency payment mechanism among these central banks shows the importance of spreading local currency payment in ASEAN, said Ms. Alisara. The signing of letters of intent for establishing local currency payment mechanism among the above-mentioned four countries will facilitate trade exchange and investment among these countries.
In a word, private sector will benefit from reduced financial trading costs, and can use local currencies for payment in more types of transaction. Amid the fluctuations of global financial market, it will help reduce the reliance on major currencies. What's more, such a practice will encourage the use of local currencies within ASEAN Economic Community, boost the development of financial market, and accelerate economic and financial integration of the region.
"In ASEAN region, the importance of trade and investment is featuring more prominently. Meanwhile, as regional economy grows, there are still many opportunities and much potential. What's more, local currencies have been used in payment for a long time. Yet there are still many other factors that lead to the fluctuations of major currencies, such as economic factors. That is why dealers will face many exchange rate risks. To reduce exchange rate risks or risk management costs, one approach is to use local currencies to lower the risks of major currency fluctuation, said the assistant governor of BOT.
As for cooperation with the Central Bank of Myanmar, Ms. Alisara said that governor of the Central Bank of Myanmar will cooperate with BOT, and discuss on formulating plans on boosting the use of Baht and Kyat in border trade, and hopefully a more detailed cooperation scheme will be hammered out in the near future.
The use of local currencies in international trade is showing a trend of increase, added Ms. Alisara. A case in point is Japan. Engaging in extensive international trade cooperation, the country has shown great interest in using local currency in foreign trade, which can make dealers better able to manage risks and lower exchange rate costs.
On top of that, the border trade between Thailand and its neighboring countries is also showing a trend of increase, as the use of local currencies. Therefore, it is necessary for central banks of these countries to review the various regulations which might impede dealers, to ensure that commercial banks of these countries provide right information and knowledge about the use of local currencies in cross border trade.
Judging from the current fluctuations of currency exchange rates, BOT still has enough tools to cope with risks of exchange rate fluctuations, and to ensure financial stability, stressed the assistant governor of BOT. Meanwhile, dealers in commercial fields are encouraged to use risk prevention tools, for instance, using local currencies rather than U.S. dollars and other major currencies.
Source: InfoQuest, by Kasamarporn Kittisamphan / Rachada / Sasithorn, translated by Xinhua Silk Road
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