The Bank of Thailand is in discussions with China's central bank over supporting the use of yuan-baht settlement to mitigate foreign exchange risk amid ongoing US dollar volatility.
According to central bank governor Sethaput Suthiwartnarueput, the Bank of Thailand and the People's Bank of China have held talks over additional cooperation to encourage businesses to use yuan-baht settlement for trade between the two countries.
The Bank of Thailand plans to meet its Chinese counterpart next month to talk about the issue.
In 2021, both central banks renewed their yuan-baht Bilateral Currency Swap Arrangement (BSA) with the aim of boosting trade and investment in local currencies and strengthening financial cooperation between the two countries.
The BSA is also meant to build private sector confidence in using local currencies for cross-border operations.
Under the local currency settlement framework, 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.
Mr Sethaput said recently the baht has been fluctuating against the dollar because of the Federal Reserve's monetary policy direction.
Although the baht's volatility has been higher than regional peers based on external factors, its levels remain moderate compared with other currencies, he said.
The fluctuation is expected to possibly continue amid global uncertainties, said Mr Sethaput.
According to central bank data, the baht hit a 16-year low of 38.46 to the dollar in September 2022, with its strongest rate of 29.77 to the greenback recorded in December 2020.
He said despite China's economic recovery after the country's reopening, the higher risk from external factors, especially global economic uncertainty and the US economic slowdown, had taken its toll on Thai exports.
The central bank predicted a 7.1% decline in Thai export values for the first half of 2023 year-on-year, followed by 4.2% growth in the second half.
Given close linkages between the Chinese economy and regional economies, notably in the service and tourism sector, China's policies of self-reliance may lower import demand.
However, according to the World Bank's East Asia and Pacific Economic Report, Thailand is expected to benefit greatly from China's reopening because of its reliance on the country for tourism and exports.
Thailand's growth will be driven by strong pent-up demand in China, said the institution.
While economic activity in developing East Asia and the Pacific has rebounded from the impact of the pandemic, output remains below 2019 levels in many countries, including Thailand, said the World Bank.