Traders in Malaysia and Thailand will soon be able to settle some deals between the two countries in their own currency under an arrangement in which certain commercial banks in each country will be chosen to provide letter of credit (L/C) facilities.

The arrangement means that traders will no longer need to obtain hard currencies such as the dollar to finance deals, hence exchange rate risks will be eliminated and administrative costs reduced in eligible transactions between the two countries.

Bilateral payment arrangement

The Malaysian minister for international trade and industry, Rafidah Aziz, and the Thai minister of commerce, Adisai Bodharamik, signed a memorandum of understanding (MOU) sealing the arrangement late-July in Kuala Lumpar. This calls on the central banks of both countries to establish a Bilateral Payment Arrangement (BPA) by end-August 2001.

The BPA will first involve both central banks establishing credit lines in the Malaysian Ringgit and the Thai Baht. They would then designate commercial banks in each other's country to issue and negotiate L/Cs under the arrangement.

Wider economic benefits

As well as benefiting traders and promoting bilateral trade, the BPA aims to reduce each country's exposure to foreign exchange risks thereby strengthening both the Ringgit and the Baht.

First transactions made under the BPA are expected in September and will initially be limited to deals involving 14 Malaysian and 20 Thai goods.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.