The Bank of Thailand is negotiating with Malaysia's central banking authorities to agree to direct exchange of the baht and the ringgit as a boost to trade and investment when the Asean Economic Community gets under way.
If an agreement is reached, it will be the first bilateral currency exchange pact within the 10-nation Asean bloc, BoT governor Prasarn Trairatvorakul said. The goal is to use local currencies as trade payments instead of the US dollar.
Speaking at a forum on “Readiness in Connecting Financial Markets, Payment Systems, and Thailand’s Financial Institutions under the Asean Economic Community”, hosted by the Economic Reporters Association on Saturday, Mr Prasarn said details will be clearer by next month.
Direct currency exchange agreements with other Asean countries are also under way. Myanmar is among the potential partners, he said.
Once the plan is realised, Thailand’s financial institutions will be allowed to determine foreign exchange rates between the baht and ringgit by themselves and Malaysian banks can do the same.
Malaysia is Thailand’s fourth-largest trading partner, with bilateral trade valued at US$9.4 billion (321 billion baht) in the first five months of this year. Last year’s trade was valued at $25.5 billion.
Mr Prasarn said financial integration within Asean will help mobilise capital for infrastructure development.
Links between their capital markets will also boost funding and regional capital market investment.
Once integration is complete, it will boost the bloc into the position of being the world’s fifth-largest economy, accounting for 3% of global GDP, while the total population will rank third in the world, Mr Prasarn said.
“Asean member states must strongly cooperate to boost our bargaining power. This will attract more investment than singular negotiations [with other countries],” he said.
Mr Prasarn said Greece’s economic problems are a lesson in overspending.