BANGKOK, THAILAND – Thailand’s central bank eased rules on bringing foreign income back into the country in an effort to relieve upward pressure on the baht.
Higher threshold for returning foreign earnings
The Bank of Thailand raised the threshold at which companies and individuals were required to repatriate foreign-currency income to 10 million US dollars per transaction, up from 1 million US dollars previously. Under the new rules, exporters and other firms could keep more of their dollar revenues abroad instead of converting them immediately into baht.
Most export transactions affected
According to the central bank, transactions below 10 million US dollars accounted for around 92 percent of the country’s total export value. This meant export-oriented businesses that generated large parts of their turnover in US dollars were expected to benefit most from the change.
The central bank said the measure was intended to reduce appreciation pressure on the baht by allowing a greater share of foreign earnings to remain offshore.
Goals: exchange-rate stability and lower costs
The relaxed rules were designed to support several objectives, including exchange-rate stability for the baht, lower costs for cross-border payments and greater flexibility in managing foreign-currency income and expenses. The Bank of Thailand stressed that the adjustment would also reduce transaction costs for cross-border payments and give companies more room to manage liquidity in different currencies.
Baht strongest currency in Asia
The baht had appreciated by about 1.3 percent against the US dollar since the beginning of the year and was, according to the central bank, the strongest currency in Asia. In the previous year it had risen by around 9 percent against the dollar.
The central bank viewed the rapid appreciation as partly not fully justified by economic fundamentals. The latest easing step formed part of a broader package aimed at slowing an excessive strengthening of the baht.
Scrutiny of online gold trading
In addition, the Bank of Thailand examined potential interventions in baht-denominated online gold trading to limit further upward pressure on the currency. Specifically, the central bank considered setting daily caps on gold transactions conducted via online platforms, in a proposed range of 20 million to 100 million baht per day.
The aim was to more tightly limit large gold purchases in baht that could influence capital flows and the exchange rate. The central bank framed the planned steps as part of ongoing measures targeting a balanced development of the baht consistent with economic fundamentals.
Debate over risks of a strong baht
The discussion around the policy highlighted concerns that a strong baht, while seemingly a sign of success, could become harmful for exporters, tourism and investors.
“A strong baht sounds like success. But for exporters, tourism and investors it can become poison.”
said an editorial commentary.
The same commentary posed open questions about policy choices.
“Is this easing a smart protection of the economy – or a silent admission that Thailand is losing control over its currency? Should the market decide – or must the central bank intervene more forcefully?”
said the commentary.