After years of regulations confining gold trade to the baht, the central bank announced a policy to allow trading gold in US dollars in Thailand. Market participants say the central bank will consider US dollar-denominated trade for foreign-related capital market products in the near future.
“The investment world has changed. Domestic investment alone is not suitable and diversifying overseas is better. Thais should be gradually educated about foreign exchange risk,” said a source familiar with capital markets.
The source said relaxing rules and letting people open foreign currency deposit (FCD) accounts freely is one measure to help people understand risk related to foreign asset investment.
The Thailand Futures Exchange (TFEX) and the Stock Exchange of Thailand (SET) have long requested permission for an exemption from the central bank to trade foreign-related products such as gold online futures, oil futures and foreign equity products in the US dollar.
Gold trading is speculative
They were earlier denied this because the Currency Act of 1958, which mandates trading goods and services here must be conducted in baht. A former regulator at the central bank who requested anonymity said gold trading is speculative and does not create economic value.
Yet with the right implementation, trading gold or assets in foreign currency terms could be a good risk management tool, said the former regulator.
“I understand the central bank’s purpose [in allowing trade of gold in dollars] because gold imports and exports could disrupt the trade balance and the exchange rate,” the former regulator said. “It would be better if the impact of exchange rates is separated from gold import-exports.”
The source said currencies and interest rates are quite complicated and traded among giant players. Trading gold in dollars will be more advantageous for those with high net worth, said the source.
Furthermore Trading gold in the dollar may take a few years of adjustment, added the former regulator.
Source: Bangkok Post