Bangkok: The baht has weakened to nearly 32 baht per US dollar. Thammasat University academics say the idea of imposing a tax on gold sales to reduce the baht's strength "does not address the root cause." They propose temporary measures to adjust the system to be settled in dollars, noting that short-term gold investments may result in losses due to baht fluctuations but remain worthwhile in the long term.
According to Thai News Agency, Associate Professor Dr. Wichai Wittayakiatlert from the Department of Mathematics and Statistics, Faculty of Science and Technology, Thammasat University, discussed the idea of taxing domestic gold trading to stem the baht's recent four-year appreciation. He suggested that the government should mitigate the baht's appreciation from gold trading by adopting a temporary measure to switch the baht's payment system from baht to dollars. This mirrors the approach taken by India and Indonesia to alleviate pressure on the baht during global market volatility. However, once the situation normalizes, the government should gradually lift this measure to maintain the baht's role as a regional currency and prevent the Thai financial system from being excessively pegged to the dollar.
Dr. Wichai explained that taxing gold transactions paid in baht, while partially reducing baht purchasing power, could prompt players to switch to paying in dollars. He likened this to solving an equation with the wrong variable, which could increase volatility, burdening the market and domestic gold investors.
He further mentioned that the rise in gold prices and the strengthening baht are due to other factors, such as the weakening US dollar and capital inflows into safe-haven assets. Studies by the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) found that the baht plays a quasi-safe haven role during periods of global volatility. The baht's four-year peak of 31.7 baht per dollar, amid a slowing real economy, reflects that currency and the real economy do not always move together.
A Thammasat University academic noted that the baht's strong economic value stems from three factors: actual demand from exports, tourism, and foreign direct investment (FDI); speculative demand from short-term profit-seeking investors; and the impact of safe-haven assets, as the baht is viewed as a stable asset in ASEAN.
Research by the World Bank and the Asian Development Bank (ADB) indicates that the baht functions as a regional currency. Over 70% of Laos' deposits are in foreign currencies, with the baht playing a significant role. It is also widely used in border trade with Cambodia and Myanmar. Approximately 80 billion to 100 billion baht is estimated to circulate outside the country, though these figures are only estimates and not official data.
For investors interested in gold, Dr. Wichai stated that short-term investments might be unprofitable due to baht volatility, as data from the Bank of Thailand (BOT) indicates daily fluctuations of 0.5%-0.8%. Using a volatility model (GARCH model), the maximum predictable risk (Value-at-Risk: VaR) is approximately 0.6-0.7% per day, sufficient to wipe out gold profits on some days.
However, long-term gold investments can be a hedge during global market volatility or high inflation if currency risk is properly managed. Dr. Wichai recommended hedging instruments like forward foreign exchange contracts (Forwards) and currency options to manage risk. He suggested investors could lock in exchange rates in advance and advised gradual investment or diversification into other assets, such as stocks and bonds, to mitigate risks.
The Kasikornbank Research Center reported the baht traded between 31.88 and 31.90 baht per dollar this morning, compared to yesterday's closing price of 31.80 baht per dollar. The weakening continued, while the dollar received additional support from better-than-expected US labor market data. The baht's movement is initially estimated at 31.80-32.05 baht per dollar today, with key factors to monitor including the market's response to the Fed meeting, global gold price situations, foreign fund flows, and the Bank of Japan's monetary policy meeting.