The Bank of Thailand is advocating for the use of local currencies instead of the US dollar in international trade, in order to mitigate the volatility of the US dollar. Alisara Mahasantana, the regulator’s deputy governor for monetary stability, supports this move, emphasizing that using local currencies can help minimize the risks associated with fluctuations in the US dollar, which have recently been as high as 8-9%.
The primary goal of promoting the use of local currencies is to provide Thai businesses with an alternative method of paying for goods and services. During periods of significant dollar volatility, business operators can choose to use local currencies for payments instead. This not only reduces the risk associated with exchange rates but also makes trade negotiations easier.
In August, Indonesia, Malaysia, and Thailand signed a tripartite agreement to encourage the use of local currencies in bilateral transactions. The central banks of these three countries issued a joint statement highlighting that the agreement aims to enhance trade by facilitating accessible and efficient local currency settlements.
This push towards using local currencies in trade is not limited to these three countries. Media reports earlier this year suggested that the Association of Southeast Asian Nations (ASEAN) planned to discuss dropping the US dollar, euro, yen, and pound sterling from transactions, and instead, moving towards settlements in local currencies. This global shift towards national currencies can be partly attributed to the secondary sanctions policies pursued by Washington.
The move to de-dollarize trade gained momentum, particularly after Western nations imposed sweeping sanctions on Russia over its military operation in Ukraine. These sanctions affected one of the world’s major energy producers and exporters, prompting countries to consider alternatives to the US dollar in order to protect their economies from the impact of such sanctions.
By promoting the use of local currencies in international trade, countries seek to reduce their dependence on the US dollar and mitigate the risks associated with its volatility. This movement towards de-dollarization could have significant implications for the global financial system and the dominance of the US dollar in international transactions.
In conclusion, the Bank of Thailand supports the use of local currencies in trade with international partners to minimize the risks posed by fluctuations in the US dollar. This trend towards de-dollarization is not exclusive to Thailand but is part of a broader global shift towards national currencies as a response to secondary sanctions policies and geopolitical factors. By adopting local currencies, countries aim to protect their economies and facilitate trade negotiations. This move could potentially reshape the international financial system and reduce the dominance of the US dollar in global transactions.