The Dollar Gets Hog Thai-ed

Thailand's PM is calling on Asian countries to start using China's Yuan instead of the US dollar as a regional reserve currency.

Prime Minister Abhisit Vejjajiva, fearful of the effects of the soaring baht due to massive capital inflows, has proposed the use of the Chinese yuan as a major regional trading currency.

Asia-Pacific leaders will have to discuss measures to deal with the fund inflows after the Group of 20 major economies failed to reach any tangible decisions, Mr Abhisit said yesterday.

"The G20 did not make any progress on the matter and it is difficult to get the United States and China to express their clear stances on the issue. But what we can do is try to cooperate in the region and reduce the impact from currency volatility," Mr Abhisit said before leaving for the Asian Games in China and an Asia-Pacific Economic Cooperation (Apec) leaders' meeting in Yokohama, Japan, this weekend.

It may not look like much, but that's big, big news in the currency world.  As the dollar hovers near all time lows against Asian currencies like the Japanese Yen, it's clear Asia is taking the side of the Dragon in their own back yard -- China -- rather than the Eagle across the Pacific.

The prime minister expects the currency issue to be raised at the Apec meeting. "What Apec must push for are ways to promote regional cooperation so that the region can cushion the impacts of the fluctuations of currencies," Mr Abhisit said.

He added, however, that for the Chinese yuan to have a greater role in transactions in the region, China would have to relax its tight controls on the currency and its capital account.

At present, about 90% of trade in Asia is conducted in US dollars.

"I suggested that Asean could have an office dedicated to the handling of currency issues. It could join forces with the ADB in pushing the idea forward," Mr Abhisit said.

Experts expect currency issues to be highlighted at the Apec meeting.

The next level of the US-China currency war will involve which currency Asia wants to use regionally.  China relaxing controls to get a larger slice of the reserve currency clout that the US has seems like a really, really good deal for China, both short and long run.  And they know it.

On the other hand, the US is going to keep hurting from this.