I do not think anyone would be able to read this news in any property portal. It’s okay, you can read it here. Haha. Central banks of Thailand and Malaysia has taken the first step in making the trade relationships between both countries to a new level. In the future, instead of relying on the usual foreign settlement currencies such as US$, the currencies of both the countries would be used to settle trades instead. In brief, if you are buying Thai goods, the quotation should now be in Thai Baht and if Thai companies are buying Malaysian goods, the quotation should now be in Ringgit. The exchange rate would be quite fixed and would no longer suddenly go up or down on a daily basis. As everyone would note, orders are not paid on the same day that it was ordered. Thus any fluctuations may cause potential losses to the unlucky party.
Both central banks have signed a memorandum of understanding to promote and encourage the private sector to settle cross-brier trades and direct investment. If this step can be used for majority of all trade settlements, there is NO NEED to worry about the volatility in the currency market of today. This may be the start of many more of such arrangements between other ASEAN countries. If this could be done successfully between all ASEAN nations, there is no need for one common currency like the Euro. The benefit is that member countries may not be tied to follow what the majority do. The disadvantage is of course, the integration is likely to be much slower and depends on the onus of the central banks and leadership of member countries in pushing for it. Some countries which are more reliant on US$ may not be as willing to strike an agreement too.
BNM governor, Zeti Akthar Aziz said, “This bilateral arrangement would further strengthen trade and investments flows between Malaysia and Thailand as well as in fostering closer economic linkages for the advancement of the region.”
Bank of Thailand Governor Prasarn Trairatvorakul said, “I believe this would further strengthen cooperation as well as boost economic and investment development in the region.”
I personally think this is a great first step for two countries and a potential giant leap for all other ASEAN nations. Assuming this integration is successful, it will encourage more of such MOUs. Truth is, why should trades between two different countries be settled using another currency other than their own? One major reason why US$ value remaining very strong is due to it being used as a world currency. Even if the US economy seems to be doing better, not many economist would tell you that it deserves to be so ‘expensive’ versus all the other ASEAN currencies. Nothing happens overnight but let’s wait for more good news to come.
written on 28 Aug 2015
Next suggested article: Ringgit is undervalued. I agree.