Thailand has joined the apparently increasing number of countries looking to facilitate non-US dollar letter of credit (L/C) and other international trade finance transactions.

Factors behind the diversification of currencies used in international trade include the increasing volatility of the US dollar in relation to other global currencies and China's ambitions to break the US currency's dominance in global trade.

A key driver for countries that have taken a neutral position on the Russia-Ukraine conflict that wish to continue or establish trading links with Russia is the fear of heavy penalties for breaching trade-related sanctions imposed by Washington on Moscow.

Easing Thai restrictions

Regulators in Thailand are reportedly considering loosening restrictions on the utilisation of the renminbi-baht trade transactions.

The Bank of Thailand, in collaboration with Asian and ASEAN central banks, is actively working toward establishing frameworks for local currency settlements.

Yuan L/Cs already on offer

Bank of Thailand governor, Sethaput Suthiwartnarueput, says the bank encourages local currency settlements, including in the Chinese renminbi, Japanese yen, Malaysian ringgit and Indonesian rupiah.

Several commercial banks in Thailand have already started to offer renminbi-denominated financial products and services, such as renminbi deposit accounts and L/Cs to give Thai companies more choices for trade payments, according to the Thaiger news channel.

Currency diversification

Earlier this month, Standard Chartered Sri Lanka said it had completed its first Indian rupee transaction and is now ready to handle L/Cs in the Indian currency (DC World News, 2 May 2023).

In April, Iran claimed it had established systems capable of bypassing the SWIFT messaging platform to conduct L/C and other trade operations with Russia over two interconnected national platforms using each country's currency (DC World News, 11 April 2023).

Sources in Pakistan's petroleum division say that Russia has agreed to receive payment for oil in three currencies: Russian rouble, Chinese renminbi, and UAE dirham. Beijing has told countries in the Gulf - including major supplier of oil to China, Saudi Arabia - that it would like to see renminbi-based deals. Brazil is also now allowing its exporters to be paid in the Chinese currency (DC World New, 24 April 2023).

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.