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1 Dec 2015

International Economy

Effects of Yuan on Thai Economy Limited after SDR Inclusion (Current Issue No. 2680)

On November 30, the International Monetary Fund decided to include the Chinese Yuan (YUAN) in its special drawing rights (SDRs) basket[1] in a move that is considered a milestone for China toward having a more prominent place in the international financial arena. This defining event, however, is seen by us at KResearch as more of a symbolic change that will not likely result in any abrupt increase in the Yuan use globally.
Data from the SWIFT transaction intermediary suggests that over recent years, the Yuan has gained traction as a currency involved in international payments. But considering that China is the world's second largest economy grossing the highest trade value in the world, the Yuan's role is in fact quite minimal. Given that, for the Yuan to attain a higher status to match other key currencies, China needs to seriously hasten its capital market reforms to bring about significant changes. To reach that goal, however, will be a daunting challenge for the Chinese authorities, since there is still much work to be done. In any case, the new IMF SDRs will not become effective until October 1, 2016, allowing everyone enough time to prepare.

The Yuan's inclusion in the SDRs basket will unlikely impact Thailand over the short term. Factors influencing the Yuan performance will now include China's implementation of monetary easing policies, which could weaken its currency that would affect the Thai economy, especially on the international trade front. Over the medium and long terms, if the Yuan becomes more widely accepted, Thailand will have to think about increasing the proportion of Yuan in its own foreign exchange reserves where it is now only marginal.

[1] Special drawing rights (SDRs) are an asset created in 1969 by the IMF as a supplementary foreign exchange reserve for members to boost liquidity in the global economy. The value of the SDR is based on a basket of currencies that can be exchanged into other currencies when needed. The SDR basket now comprises US Dollars, the Euro, Yen and Pound Sterling; that composition is reviewed by the IMF every five years.

International Economy