China, Thailand to set up $1 billion swap mechanism

Thailand and China will set up a 7-billion-yuan (US$1 billion) swap mechanism to foster trade between the two countries, Bank of Thailand Governor Prasarn Trairatvorakul said Monday.

The agreement is expected to be signed on Thursday when Chinese Vice President Xi Jinping, who is expected to take over as China's top leader next year, starts a three-day official trip to Thailand after Vietnam.

Experts see this as an attempt by Beijing to improve ties with its neighbors after Washington's unveiling last month of a strategic shift towards Asia, according to The Wall Street Journal.

The swap line will support the use of the yuan in Thailand's trade, Prasarn said.

Thailand's central bank has already received China's approval to invest in the Chinese interbank bond market and now it is looking for further approval to invest in the country's capital markets as a qualified foreign institutional investor.

Paiboon Ponsuwanna, chairman of the Thai National Shippers Association, was delighted at the news, as the central bank's move will not only help save costs for exporters, but also increase trade opportunities between Thailand and China amid slower economic growth in the United States and the European Union.

China is an increasingly important market, now accounting for 11 per cent of the total exports of the Kingdom. China's rising role in the global economy will benefit Thailand if the country turns to trade with China and adopts the yuan, he said.

The measure will also help reduce the US dollar's influence on the global monetary market, and increase the weight of other foreign currencies, since the US economy is fragile.

More Thai exporters will trade under the yuan regime in the future as now more than 90 per cent of Thai exports are transacted in US dollars and that is costly for those who export to China and other Asian markets, Paiboon said.

Bangkok Bank is the first commercial bank offering yuan transfers to China for individuals.

The bank in collaboration with the Bank of China has launched a convenient option for transferring yuan to China to help eliminate complex procedures and reduce risks from currency fluctuations.

The maximum transfer per day is 80,000 yuan ($12,524) per person. A special fee of 600 baht (US$19) per transaction will be charged until March 31 before it reverts to 1,150 baht ($36.6).

Thanit Sirichote, manager of global payment services, said joining with the Bank of China to launch the service for individual customers was the latest demonstration of Bangkok Bank's leadership in the international funds-transfer business.

The bank will use the officially announced exchange rate for transactions and customers can check the transfer amount in yuan before making a transfer.

The service for individual customers will be useful for the parents of children studying in China, as they can conveniently transfer funds to pay for tuition and other personal expenses. The service will also suit Chinese expatriates who want to repatriate income to their accounts in China.

The service provides more convenience and flexibility for individual customers, and limits the risks from exchange-rate movements. Individual customers used to have a lot of restrictions on transferring funds to China. For example, if the transfer was not for trade purposes, the sender had to transfer funds in a foreign currency first and the funds would later be exchanged for yuan, which meant senders did not know the exchange rate or the exact amount of funds recipients would receive.

The Chinese government also imposes a ceiling on foreign-currency transfers of $50,000 per year.

Photjanart Sangpruaksa, first senior vice president of Kasikornbank, said the swap agreement could increase yuan liquidity, which would help banks set a fair price for providing transaction services to customers.

While KBank has not learned the details of the agreement, it believes the development can help promote the expansion of trade and investment between Thailand and China, he said.