Recently, in the face of continuous fluctuations in the US dollar, the Bank of Thailand is discussing with the People's Bank of China to support the use of RMB and Thai baht for settlement, in order to reduce foreign exchange risk. The Bank of Thailand plans to meet with China in the near future to discuss relevant matters. At the same time, Thailand also said that under the framework of local currency settlement, the Bank of Thailand also cooperated with the Ministry of Finance of Japan, the Central Bank of Malaysia and the Bank Indonesia to support the use of regional currencies in intra Asian trade and investment and personal payments.

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Currency settlement refers to the process of currency transfer through interbank settlement systems in international trade and financial activities. In international trade, currencies of different countries need to be exchanged, so a unified settlement mechanism is needed to ensure the smooth progress of transactions. As of now, international monetary settlement is still dominated by the US dollar.

The reason why the US dollar is the main currency for international settlement dates back to the end of the World War II last century. In both World Wars, the United States was far away from the main battlefield and was the most important arms supplier. After World War II, global capital flowed into the United States. Compared to other countries in the world, at that time, the United States had a higher international status and a more stable monetary system.

In 1944, the United States promoted the establishment of three world systems, established the United Nations in the political system, established the World Trade Organization in the economic system, and established the Bretton Woods system in the monetary system.

The Bretton Woods system stipulates that the dollar is linked to gold, and the official price of an ounce of gold is35 dollars, that is, one dollar is about 0.88 grams of gold, which equals the value of the dollar and gold. In addition, the currencies of various countries are linked to the US dollar, and the exchange rate with the US dollar is determined by the proportion of the gold content of the currency, maintaining a stable fixed exchange rate to protect the official price of gold from market influence. It is also stipulated that in international settlements, the US dollar is the only designated currency.

The Bretton Woods system,Ending the global monetary and financial chaos after the warA stable international monetary system centered around the US dollar has been formed.Bringing more than 20 years of economic prosperity to the Western world.However, with the development and prosperity of the economy and the impact of major economic systems on the US dollar, the drawbacks of this system quickly emerged.

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The Bretton Woods crisis emerged inIn 1960, due to the linkage between the US dollar and gold, the amount of gold reserves determined the issuance of the US dollar. This solid restriction prevented the US dollar from issuing more gold without any increase, and other countries could hold the US dollar at any time to exchange for sufficient gold from the United States. However, in order to stimulate the domestic economy, aid allies, and cope with war expenses, the United States had to exceed the US dollar.

In 1960, the short-term foreign debt of the United States reached US $21 billion, and the Gold reserve that can repay the debt was less than US $6.8 billion. Private and financial speculators suspected that the US dollar in their hands could no longer be exchanged for sufficient gold, and sold the US dollar to run on gold.

With the recovery of the global economy after the war, economies such as Japan, Western Europe, and China have an increasing trade surplus with the United States.In the early 1970s, the US dollar began to depreciate, and countries around the world abandoned their fixed exchange rates with the US dollar, making floating exchange rates the mainstream. In 1971, the US government announced the implementation of a new economic policy to stop foreign countries from using the US dollar to exchange gold. Thus, the International monetary system centered on the US dollar collapsed and the Bretton Woods system ended.

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Although the Bretton Woods system no longer exists, it is affected by the United States' international status and historical legacy factors. The US dollar still dominates the international monetary settlement system. According to the International Fund Clearing System, as ofIn June 2020, the proportion of international trade settled in US dollars was 87%, followed by the euro accounting for 7%.

In the past two years, it has been affected by the epidemic and the Russo-Ukrainian War. The inflation rate in the United States has been rising all the way, local timeOn May 3, the Federal Reserve Board of Governors of the United States announced that it would raise the target range of the Federal funds rate by 25 basis points to 5% to 5.25%. It is reported that this is the 10th consecutive interest rate increase by the Federal Reserve, and the cumulative interest rate increase has reached 500 basis points, aimed at curbing domestic inflation.

At the same time, the banking crisis in the United States is also continuing to ferment, just this yearIn early May, the United StatesThe Federal Deposit Insurance Company of the United States announcedFirst Republic Bank of the United States will be sold to Chase BankThe third bank to fail in two months,It is also the second largest bank in American history to fail, with total assets second only toWashington Mutual, which collapsed in 2008.

Faced with such an unstable US dollar situation, countries around the world have begun to abandon the US dollar settlement system.

this yearAt the end of February, Iraq announced that it would allow Import with China to be settled in RMB; In March of this year, Russia stated its readiness to completely abandon the US dollar and use the Chinese yuan for foreign trade settlement with other countries; At the end of March this year, Brazil announced that it had reached an agreement with China to trade in local currencies such as the Chinese yuan and the real. At the end of the same month, Malaysia even initiated discussions on plans to establish an "Asian Monetary Fund".

Data shows that there are currently71 countries and regions have decided to de dollarize. According to the data of the SWIFT in February 2022, the U.S. dollar accounts for 41.1% of the global monetary payment system; The euro accounted for 36.43%, followed by the pound at 6.58%, the yen at 2.98%, and the Chinese yuan at 2.19%.

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As the second largest economy in Southeast Asia, Thailand has long beenIn 2021, a local currency swap agreement was signed with China, with a swap scale of 70 billion RMB/370 billion Thai baht. The agreement is valid for five years and can be extended by mutual agreement.

This time, China and Thailand have once again put their support for RMB Thai baht settlement on the agenda, which has attracted widespread attention from all sectors.

For Thailand, using RMB and Thai baht settlement can not only narrow the trade deficit with China, but also promote Thai enterprises' exploration of the Chinese market and improve the export competitiveness of the entire country. At the same time, the use of RMB can also reduce the Foreign exchange risk faced by Thai enterprises in cross-border trade, reduce their operating costs and create more business opportunities for them.

For China, establishing a settlement mechanism between the Chinese yuan and Thai baht with Thailand can strengthen economic ties with Thailand, enhance mutual trust and cooperation between the two countries. Moreover, this new settlement method can further promote the internationalization process of the RMB, expand its influence in Southeast Asia, and enhance its international status.

However, authoritative experts in the industry are also concerned about this, as the new settlement method implies new risks and challenges. Firstly, China and Thailand need to establish corresponding settlement and regulatory mechanisms to ensure safe and convenient cross-border settlement services. Secondly, it is necessary to address issues related to exchange rates, monetary policy, etc. to avoid potential risks. In the process of promoting this new settlement method, it is necessary for all parties to work together and actively explore solutions to ensure the feasibility and sustainability of the entire process.