BANGKOK, THAILAND – Thailand’s central bank warned that an overvalued baht and opaque gold-linked capital flows threatened to derail the country’s fragile economic recovery.
Central bank sounds alarm over surging baht
The Bank of Thailand reported that the baht had continued to climb despite a recent interest rate cut that pushed the policy rate down to 1.25 percent, a historic low. In December alone, the currency appreciated by 2.5 percent, driving it to a four-year high of 31.52 baht to the US dollar.
Governor Vitai Ratanakorn issued an unusually blunt warning to the government that the situation had reached a critical point.
“If we do not act now, there is a risk of stalling the economic engine,”
said Vitai, governor of the Bank of Thailand.
Gold flows seen undermining monetary policy
At the core of the bank’s analysis was the role of gold in fuelling capital inflows. Large funds were reportedly moving from US dollars into gold and then into baht, a pattern the central bank said effectively neutralised its monetary tools.
Vitai identified this as a major loophole in the system.
“Without a detailed insight into these transactions, every currency policy measure is like flying blind,”
said Vitai, governor of the Bank of Thailand.
Push for tighter reporting and new oversight powers
The governor pressed the Finance Ministry to introduce new reporting obligations for gold-related foreign exchange transactions. The central bank argued it needed direct authority to request transaction reports from major gold traders in order to see who was moving the large sums driving the baht higher.
Officials said they had detected “clear anomalies” in recent flows, which appeared to have detached the baht’s value from Thailand’s underlying economic fundamentals. The existing legal framework was described as outdated and inadequate for the rapid online trading environment of 2025.
Proposal for dedicated gold regulator
A proposal was also floated to create a specialised government agency focused solely on supervising the gold trade. Authorities said the rapid growth of online trading platforms had turned gold from a simple commodity into a key currency factor.
These digital platforms were moving billions in virtual trades, amplifying swings in the baht whenever the gold price shifted. Regulators now viewed the digitalised gold market as a structural driver of currency volatility with direct consequences for Thailand’s export sector.
Industry warns of export and tourism losses
The Federation of Thai Industries backed the central bank’s concerns. Its chairman, Kriengkrai Thiennukul, warned that exporters and tourism businesses were facing a prolonged squeeze from the strong baht.
“Exporters and tourism companies must expect significant losses well into 2026 if there is no counteraction,”
said Kriengkrai, chairman of the Federation of Thai Industries. He added that the baht was clearly overvalued relative to an economy still struggling with the after-effects of global crises.
Fears of money laundering through gold
Alongside legal flows, officials voiced deep unease about possible money laundering via unregulated gold transactions. Authorities feared Thailand could become a hub for illicit funds with no link to real economic activity.
They suspected that criminal networks were using the gold market to wash money, inflating the baht and distorting fair competition. Regulators warned that it was almost impossible to distinguish legitimate investment from black money as long as transparency remained limited.
Safe-haven status adds to pressure
Thailand’s large foreign exchange reserves and perceived stability continued to attract legal international capital. Global investors had shifted heavily into Thai government bonds, boosting demand for the baht.
Economists noted that what had once been seen as a compliment to Thailand’s financial management had now become a burden. The combination of safe-haven inflows, speculative gold trades and seasonal tourist and export earnings was described as a “perfect storm” that pushed the currency to levels many businesses could not bear.
Debate over quantitative easing and inflation risk
In response, some economists called for a Thai-style quantitative easing programme to weaken the currency by expanding the money supply. They pointed to the US and Europe, where similar measures had been used in the past to depress exchange rates.
Reports indicated that the previous government had considered such plans but lacked the broad political backing needed for implementation. Public fears of inflation remained strong, with concerns that higher prices for basics such as pork or noodle soup could trigger social unrest.
Immediate clampdown on gold-related transactions
For now, the central bank focused on direct market controls. Supervision of US dollar-denominated gold transactions was sharply tightened after data showed that gold-linked foreign exchange trades had at times accounted for up to 20 percent of daily market volume.
Vitai instructed commercial banks to scrutinise any sale of US dollars into baht, especially where gold was involved, and to demand detailed documentation. Compliance departments were told to report suspicious flows, with the stated aim of blocking purely speculative inflows seeking currency gains.
Online platforms and hidden capital flows under watch
The central bank also sought explicit legal powers to obtain data directly from major gold dealers and online trading platforms, rather than relying on voluntary cooperation or intermediaries. Regulators described these data as essential “fuel” for effective oversight.
Investigations were launched into cases where foreign currency was sold to buy baht without any clear economic purpose. Banks were ordered to apply stricter monitoring standards, with authorities signalling that the era of laissez-faire supervision was over.
Gold industry challenges central bank narrative
Not all market participants accepted the central bank’s diagnosis. Jitti Tangsithpakdi, president of the Thai Gold Traders Association, rejected the claim that gold trading was the main culprit behind the baht’s rise.
He said trading activity had been subdued since October. After gold hit a record price of more than 4,381 US dollars per ounce, equivalent to about 144,500 baht, buyers had become cautious and the market had cooled, he argued.
Mixed forecasts and communication risks
Forecasts for the baht’s path remained divided. Yunyong Thaicharoen of Siam Commercial Bank expected no quick relief, projecting a strong baht through the first quarter of 2026, with possible easing only in the second half of the year as US monetary policy shifted.
At the same time, Kanjana Chockpisansin of the Kasikorn Research Centre warned that every public remark by policymakers was now being weighed carefully by markets.
“An overly optimistic or overly pessimistic statement can trigger immediate market reactions,”
said Kanjana, head of research at Kasikorn Research Centre.
Regional competitiveness under strain
A comparison with regional peers underscored the scale of Thailand’s challenge. While the Vietnamese dong and Chinese yuan had also appreciated, their gains lagged well behind those of the baht.
Analysts warned that Thailand was steadily losing price competitiveness for new factories and large contracts. Measured in hard currency, production costs in Thailand were now higher than they had been for years, they said.
Further technical steps to ease pressure
Business leaders, including Kriengkrai, called for tougher measures, saying stricter document checks were only a first step and urging coordinated investigations into illegal flows. He cautioned that black money from fraud cases could “infect” the Thai economy and risk international sanctions if unchecked.
As an additional technical move, the central bank planned to raise the transaction limit for foreign currency accounts from 1 million to 10 million US dollars, roughly 330 million baht. Officials hoped this would allow companies to hold foreign currency without immediately converting it, easing short-term appreciation pressure.
Outlook: strong currency, fragile economy
Looking ahead to 2026, assessments of Thailand’s prospects were mixed. The tourism sector was recovering, but per capita spending by visitors was expected to suffer from the stronger baht, and many small and medium-sized firms were facing tighter credit conditions.
The central bank said it was fighting on several fronts at once: containing inflation, supporting growth and trying to rein in a currency that appeared to have taken on a life of its own. Officials framed tighter gold and capital flow regulation as an attempt to reclaim control over national monetary policy.
Warning of a no-win scenario
The bank’s leadership argued that the episode highlighted the vulnerability of an open economy such as Thailand to global dollar weakness, speculative gold trading and potentially illegal inflows. Policymakers warned that conventional rate cuts alone could no longer steer the market.
They cautioned that if measures to curb speculative and opaque capital movements failed, Thailand could enter 2026 with a strong currency but a weak economy, a scenario they described as one in which there would ultimately be only losers.