BOT wants use of local currencies in international trade amid baht volatility
The Bank of Thailand (BOT) has admitted that the baht has been more volatile than currencies of neighbouring countries and even many countries in Asia.
External factors are 60-70% of the reason for the volatility of the Thai currency, BOT assistant governor of Financial Markets Operations Group, Alisara Mahasandana, said. These factors include the monetary policies of the United States, global economic trends, as well as specific factors within Thailand, such as high-level gold trading within the country and political uncertainties resulting from an ongoing government formation. These factors contribute to the increased volatility of the baht, Alisara explained.
However, if we look at the movement of the baht from the beginning of the year to the present, it has been relatively weak at 1.6%, while the volatility of the baht stands at 6.5%. Looking ahead, considering the remaining uncertainties, there is still the possibility of continuous baht volatility, she said.
This issue has been given significant importance by the BOT, which continues to encourage businesses to manage exchange rate risks by hedging consistently. This is accompanied by easing of criteria, or regulations within the forex ecosystem to reduce currency volatility and support the use of local currencies to reduce reliance on the US dollar, she said.
To further support foreign investors, or businesses in maintaining high liquidity and encouraging more investments, the BOT has been promoting the FX ecosystem plan.
In the third quarter of this year, the BOT plans to introduce more supportive measures, such as:
▪︎ Easing of criteria for transferring funds abroad to increase liquidity, expanding the limit for foreign exchange purposes from US$50,000 to $200,000, and allowing Thai companies to transfer funds to their parent companies abroad to help manage liquidity.
▪︎ Expanding the investment limit for foreign retail investors in foreign securities to $10 million directly, without going through intermediaries, compared to the previous limit of $5 million.
Furthermore, there will be measures to enhance liquidity for foreign companies and investors by expanding the scope of the Non-Resident Qualified Company (NRQC) project, she said. This will allow foreign companies engaged in cross-border transactions with financial institutions in Thailand to participate, providing more liquidity for international transactions. It also allows foreign investors to directly hedge currency risks with financial institutions in Thailand without intermediaries, Alisara said.
Lastly, to reduce exchange rate volatility and reduce dependence on the dollar, the BOT will support the use of local currencies in international trade, she added.
In the near future, the BOT will collaborate with the central banks of China, Malaysia, and India to further relax the remaining barriers and promote increased inter-payments between countries, Alisara said.
The BOT's long-term plan is to adjust the structure of the foreign exchange market to support business operators and to diversify investment risk for foreign investors, she said. This includes providing more options for investors to spread investment risk and managing the volatility of the baht, as it is difficult to forecast currency fluctuations, especially those influenced by external factors, she added.
Therefore, managing the exchange rate is considered a crucial aspect of their operations, Alisara said.
