The Bank of Thailand plans to relax rules for yuan-baht trade payment supporting local currency settlement, reducing reliance on the US dollar.
The central bank has been studying the barriers to yuan-baht payment and plans to reduce those limits this year, said deputy governor for monetary stability Mathee Supapongse. This should encourage the private sector, including financial institutions and business operators, to use yuan-baht for payment and settlement, said Mr Mathee.
He said business activities and financial exposure between Thailand and China are active compared with other Asean countries, particularly for trade, investment and tourism.
However, yuan-baht payment and local currency settlement are still lower for yuan than for other regional currencies. This is partly attributed to Thailand having fewer financial facilities from China compared with other countries in the region, said Mr Mathee.
Last week, the Bank of Thailand held talks with China's central bank about additional cooperation to encourage businesses to use yuan-baht settlement for trade between the two countries. The collaboration would help Thai businesses mitigate foreign exchange risk amid ongoing US dollar volatility.
Cooperation would fall under the central bank's local currency settlement framework, he said.
In 2021, both central banks renewed their Bilateral Currency Swap Arrangement with the aim of boosting trade and investment in local currencies and strengthening financial cooperation between the two countries.
Apart from China, the Bank of Thailand has also cooperated with Japan's Ministry of Finance, Bank Negara Malaysia and Bank Indonesia to support the use of regional currencies for intra-Asian trade and investment, as well as individuals' payments. The high growth potential of Asean economies including Thailand should also support business activities across the region, said Mr Mathee.
In a related development, he said the domestic economic recovery would help to improve the household debt situation. An economic rebound would also support the livelihoods of small and medium-sized enterprises as well as the labour market, contributing to job creation and higher income.
Given the recovery, the purchasing power of middle- and upper-income consumers has been increasing in several areas. However, household debt in the farm sector still worries the central bank because of the prolonged debt burden, said Mr Mathee.
"The income of farmers mainly depends on annual production and pricing. Climate change factors are likely to affect their production and income over the long term," he said.
According to the central bank, household debt's contribution to GDP was 86.9% in the fourth quarter of 2022. The central bank wants to see the household debt level below 80% of GDP, in accordance with international standards.
