China and Laos have signed an agreement on bilateral monetary cooperation to enhance the use of local currencies in trade and investment, the People’s Bank of China (PBOC), the country’s central bank, announced Thursday.
The agreement, signed between the PBOC and the Bank of Lao PDR, will allow direct settlement of the two countries’ own currencies in transactions under all open current and capital accounts, the PBOC said in a statement.
The agreement will strengthen monetary and financial cooperation between the two countries, boost the use of local currencies and facilitate trade and investment, the central bank said.
Laos and China have agreed to facilitate the direct exchange of the Lao kip (LAK) and the Chinese yuan (CNY) instead of having to make conversions through other currencies as was done previously.
Governor of the Bank of the Lao PDR, Mr Sonexay Sithphaxay, and Governor of the People’s Bank of China, Mr Yi Gang, signed the Agreement on Bilateral Local Currency Cooperation between the two central banks on January 6 in Beijing, China.
Prime Minister Thongloun Sisoulith and his Chinese counterpart Li Keqiang witnessed the signing of the agreement.
The event took place during an official visit by Prime Minister Thongloun Sisoulith and his delegation to China from January 5 to 9.
According to a media release posted on the website of the Bank of the Lao PDR, under the currency cooperation agreement, Lao and Chinese central banks agreed to enhance cooperation and advance settlements and payments for trade and investment between residents of the two countries in LAK and CNY under the provision of legislation between the two countries.
The two central banks agreed to encourage commercial banks in the two nations to enhance cooperation and facilitate the exchange of LAK and CNY between residents of the two countries.
A statement from the Chinese central bank said the Laos-China monetary agreement would strengthen monetary and financial cooperation between the two countries.
The main aim of the agreement is to boost the use of local currencies and facilitate trade and investment, according to the statement, which was quoted in a Xinhua report on Friday.
China is the largest foreign investor in Laos. The value of trade between the two nations has seen rapid increase over the past few years and is expected to increase further when the Laos-China railway comes into service in 2021.
A senior official from the Bank of the Lao PDR told Vientiane Times on Friday that the new agreement between the Lao and Chinese central banks would provide significant support for trade and investment between the two countries.
“Trade transaction costs between the two countries will be lower,” he said, adding that in the past traders had to convert their money into US dollars before exchanging it for Lao kip or Chinese yuan.
Analysts say Laos may benefit from the Laos-China monetary cooperation, adding that diversification of the currency exchange policy would drive down demand for US dollars, which Laos must currently use to import goods.
At present, Laos is having difficulty maintaining a stable rate of exchange between the kip and the US dollar and between the kip and the Thai baht. The value of the baht and US dollar has surged in the past few months.
The Bank of the Lao PDR has been working to maintain exchange rates as part of efforts to create a favourable business environment.
The central bank made a commitment to the National Assembly that fluctuations in the value of the kip would be maintained within a 5 percent range.