China, Thailand expand yuan-baht trade settlement

Thailand and China are strengthening their economic ties by promoting the direct use of the yuan and baht in bilateral trade. This initiative, supported by at least six Chinese commercial banks, aims to reduce transaction costs and enhance flexibility for businesses. The Thai-Chinese "Belt and Road" initiative countries are targets for this move, which seeks to deepen trade links beyond the US dollar.

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Lowering the cost of trade, reducing reliance on a single currency, increasing flexibility, and potentially impacting trade costs between China and Thailand, especially for Thailand's commercial ties, are all potential benefits.

The Thai National Shippers' Council (TNSC) described the yuan-baht settlement as a positive development for China-Thailand trade. They noted that expanding the use of baht and yuan could lower trade costs, reduce reliance on a single currency, and increase flexibility. The council advised that such arrangements should be based on voluntary participation, appropriate risk management, and cost efficiency, ensuring genuine benefits for exporters.

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Such arrangements should be based on voluntary participation, appropriate risk management, cost efficiency, and careful consideration of the trade partner's transaction structure, costs, and revenue.

For Thai exporters selling to China, receiving payments in yuan can be advantageous, as it naturally helps manage exchange rate risks. Businesses that receive yuan can use it for imports from China or convert it to baht. However, economists caution that the US dollar remains dominant in global trade and finance. While the yuan-baht settlement is expanding, it does not mean businesses must abandon the US dollar. The TNSC also recommended that financial institutions and the government develop rapid payment systems and foreign exchange services to support the yuan-baht market, making it more liquid and accessible beyond large corporations.

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For Thai exporters to China, receiving payments in yuan can be advantageous when they have yuan-denominated imports from China or expenses to pay. This can naturally help manage exchange rate risks.

According to the TNSC chairman, the move to include baht in direct yuan-baht settlement reflects a broader trend. He explained that businesses should carefully compare settlement currencies, fees, and exchange rates before deciding. The council also advised businesses that receive yuan to consider its use for imports from China or for settling payments with their trading partners, thereby reducing transaction costs and hedging exchange rate risks.

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Businesses should carefully compare the existing alternatives before deciding, considering factors such as transaction costs, exchange rate fees, and the structure of the transaction.