The Bank of Thailand (BOT) is scheduled to meet with gold traders early next week to discuss and finalize measures aimed at mitigating the impact of gold trading on the Thai baht. Chayawadee Chai-anant, the Assistant Governor for Corporate Relations, stated that the central bank has been engaging in intensive discussions with relevant agencies and gold traders to reduce the strong link between gold prices and the baht. The upcoming discussions will focus on consolidating data and identifying suitable measures.
Potential measures under consideration include:
- Promoting gold transactions in US dollars to lower trading costs.
- Enhancing monitoring of gold shop data and trading behaviors.
- Exploring tax measures, which require careful evaluation due to potential side effects; if the baht appreciates excessively, taxation might be employed to ease pressure and curb volatility related to gold prices.
Chayawadee emphasized that such measures cannot directly control the baht’s appreciation. Instead, the central bank aims to develop policies based on comprehensive data, stressing the importance of understanding and addressing root causes.
Pawinee Chitmongkolsamur, Senior Director of the BOT’s Financial Markets Department, explained that recent baht appreciation has largely been driven by the weakening of the US dollar, which has fallen nearly 10% year-to-date amid expectations of looser US monetary policy. This has strengthened regional currencies, with the baht notably outperforming its peers.
She identified three key factors behind the baht’s strong rise compared to neighboring currencies:
- A better-than-expected current account balance.
- Rapid political stabilization in Thailand.
- A surge in global gold prices, which have increased by more than 40% this year.
Pawinee noted that Thai gold trading habits contribute to the volatility. When gold prices rise, traders tend to sell to realize profits, and gold shops sell abroad, receive US dollars, and convert them back to baht to pay customers. This cycle amplifies baht volatility and causes it to strengthen more than other regional currencies.