The Bank of Thailand has proposed a bold proposal to reduce the reliance on the US dollar in international trade. The central bank’s deputy governor for monetary stability, Alisara Mahasantana, suggests using local currencies instead to mitigate the volatility associated with the greenback. This initiative aims to provide Thai businesses with an alternative means of paying for goods and services, simplifying trade negotiations and minimizing the risks of fluctuating exchange rates.
Reducing Dependence on the US Dollar
The recent volatility of the US dollar, which has seen fluctuations of 8-9%, has prompted the Bank of Thailand to advocate for a shift away from the greenback in international trade. The goal is to decrease the vulnerability of Thai businesses to currency risk. By encouraging the use of local currencies, the central bank hopes to provide a safer and more stable medium of exchange during periods of significant dollar volatility.
Alisara Mahasantana emphasized the benefits of this approach, stating, “During periods of significant dollar volatility, business operators can opt to use these local currencies for payments instead; this reduces the risk associated with exchange rates, making trade negotiations easier.”
Regional Cooperation and Agreements
Thailand is not alone in its pursuit of de-dollarizing trade. In August, the central banks of Indonesia, Malaysia, and Thailand signed a tripartite agreement to promote the use of local currencies in bilateral transactions. This agreement aims to make trade settlements more convenient and efficient by using local currencies, thereby reducing the reliance on the US dollar.
Furthermore, reports earlier this year indicated that the Association of Southeast Asian Nations (ASEAN) was considering discussions to move away from using not only the US dollar but also the euro, yen, and pound sterling in transactions. The shift towards local currencies is seen as a means to bolster economic independence and stability within the region.
The move towards de-dollarizing trade has gained momentum on the global stage. This shift is partially attributed to the policies of secondary sanctions pursued by the United States, which have encouraged countries to seek alternative trading arrangements. As Western nations have imposed sweeping sanctions on Russia, one of the world’s primary energy producers and exporters, over its military operation in Ukraine, many countries are exploring ways to reduce their exposure to the dollar and the potential impact of sanctions on their economies.
Thailand’s central bank’s proposal to use local currencies in international trade represents a significant step towards reducing the dependency on the US dollar and mitigating currency volatility. By seeking regional cooperation and exploring agreements with neighbouring countries, Thailand is taking proactive measures to secure its economic stability and independence. As the global landscape of trade and finance evolves, this shift towards local currencies reflects a broader trend of countries seeking alternatives to traditional dominant currencies like the US dollar.