Bank of Thailand to loosen foreign exchange regulations to stabilise long-term exchange rates

The Bank of Thailand revealed plans to loosen foreign exchange regulations to stabilise the long-term exchange rate. The move, which shows a clear focus on balancing capital inflows and managing volatility, comes as Thailand’s economy globally integrates further.

Under the foreign exchange initiative, Thai individuals will now be able to pour as much as US$10 million into offshore markets, doubling the existing limit of US$5 million. According to Alisara Mahasandana, Assistant Governor and head of the Financial Markets Operations Group at the Bank of Thailand, this is part and parcel of the bank’s efforts to balance capital flows and manage the Thai currency’s volatility against the dollar.

In addition to this, there will be an increment in the permissible volume for cross-border money transfers, which is set to rise from US$50,000 to US$200,000. In the same stroke, Thai business entities will have permission to forward funds to overseas parent firms in a move referred to as “notional pooling.” As part of the action plan, these foreign exchange easing measures should reach implementation by the third quarter of the current year, Bangkok Post reported.

Alisara further highlighted the central bank’s drive to boost the use of the local currency in transactions between Thailand and its four Asian neighbours: China, Japan, Malaysia, and Indonesia. In keeping with this vision, the Bank of Thailand has recently engaged in discourse with the People’s Bank of China on collaborative efforts to incite businesses to adopt the use of the yuan-baht settlement for trade between the two nations, easing foreign exchange. Alisara said…

“Trade between the pair is expected to increase, which is why the two central banks want to promote the continued use of local currency.”

In terms of local currency transactions between Thailand and Indonesia, there has so far been minimal change. However, Thailand-Malaysia settlement transactions have remained steady, says Alisara, adding the Bank of Thailand’s keen interest to engage both nations’ central banks in deliberations to foster the use of local currencies and boost foreign exchange.

As for Japan, Thailand has an existing bilateral local currency swap arrangement, which plays a crucial role in their foreign exchange systems. This pact allows the exchange of local currencies between the two central banks of up to 240 billion baht or 800 billion yen. Therefore, it ensures their capacity to provide baht or yen liquidity to eligible financial organisations in support of their cross-border operations.

Providing further insight, Alisara stated that in the realm of foreign exchange, the commonly shared perception is that the baht routinely wavers with the US dollar but moves in line with regional currencies. This increased baht-dollar volatility has mainly been ascribed to external factors, which allegedly account for around 60% of it, particularly the trend and trajectory of the US economy and the US Federal Reserve’s monetary policy direction.

Anticipating the future, Alisara forecasts a degree of baht volatility due to persisting uncertainties, both external and internal alike.

“Thus, foreign exchange hedging for importers and exporters as a means to minimise foreign exchange risks.”

She concluded by stating that the central bank’s eased foreign exchange rules should function as pre-emptive solutions to alleviate the baht volatility over the long term.