Higher return (but higher risk) for foreign currency reserves accumulated as part of exchange rate management.
BoT seeks reserves profit, New entity would have more flexibility by Parista Yuthamanop
The Bank of Thailand might set up a separate entity to better diversify investments and improve returns on its increasingly large foreign reserves, says M.R. Chatumongkol Sonakul, the central bank chairman.
The new investment body would be managed as a corporate entity wholly owned by the central bank. It prefers this approach to allocating funds to other managers in the form of a sovereign wealth fund, said M.R. Chatumongkol, a former central bank governor.
The Bank of Thailand's foreign reserves have expanded considerably over the past few years from gains in international trade and foreign investment. Official reserves stood at US$208 billion (6.30 trillion baht) as of May 13, a rise of $17 billion since the beginning of this year. Foreign reserves rose $38 billion in 2010 to $191 billion at the end of the year.
Diversifying foreign reserves to assets other than sovereign debt has been a challenge for many regional central banks at a time of low interest rates in advanced economies and a weakening US dollar.
M.R. Chatumongkol said the central bank would push for an amendment to the Bank of Thailand Act to allow some foreign reserves to be invested in equities. The law would also stipulate the amount of the reserves to be allocated to the new entity.
The central bank has considered the issue as we have accumulated foreign reserves from our actions to stabilise the [foreign exchange] market, but we currently get a very low return from assets in the overseas market," he said after a board meeting last week.
The entity will operate under clear guidelines in terms of the extent of risk it can take.
The central bank plans to finalise its decision on foreign reserve management and details of a proposed new approach over the next few months to submit to the new government, he added.
Wiwan Tharahirunchote, the executive chairman of Kasikorn Research Center, agreed that the central bank would be able to manage its foreign reserves more efficiently by setting aside funds for the new entity to handle.
"It would allow the central bank to have better concentration on management of foreign reserves for the lowest risk and the highest returns," she said.
The new entity is expected to be supervised by regulations that shield fund managers from liability for possible losses from the foreign reserve management.
"Such a regulation is critical as investment always has the risk of facing losses. No fund manager wants to be liable for penalties as state officials producing losses to public funds," she said.
Sovereign wealth funds to manage foreign reserves or gains from fiscal income have become popular as financial markets have become increasingly complicated.
Singapore and some other countries use sovereign wealth funds to invest in a variety of assets and joint business ventures in other countries for long-term returns.
Atchana Waiquamdee, a central bank deputy governor, said the central bank would have to consider carefully the amount of foreign reserves in excess of requirements to be set aside for investment in higher-risk assets.
The law calls for all banknotes in circulation to be fully backed by foreign reserves.
"We have to also ensure that the foreign reserves stay at a sufficient level to cover short-term debts," said Dr Atchana.
This is because a portion of the reserves came from inflows of foreign capital which might be reversed.
(Source: Bangkok Post, BoT seeks reserves profit, New entity would have more flexibility, 23/05/2011, Parista Yuthamanop, link)
Banking and Investment Vocabulary
central bank - the main government bank in a country that manages the supply of money and loans (credit) in the economy by adjusting the cost of borrowing from the bank (policy interest rate) (See Wikipedia)
central bank governor - the head of the central bank, the highest level manager in the central bank
foreign reserves - the amount of foreign currency or gold held by a national bank, which is used for dealing with the national banks of other countries เงินสำรอง
reserves - same as "foreign reserves"
profit - money that you make from selling goods and services after all your costs have been paid กำไร
return - return on an investment, the profit or money made from an investment
diversify - add variety to that you already have ทำให้หลากหลาย (See glossary)
investment - taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)
investment body - an organisation with the job of investing money and managing these investments
corporate entity - corporation, a company that is a legally separate separate individual (See Wikipedia)
fund - money kept or provided for some purpose or investment เงินทุน กองทุน
allocate funds - give money to some project or special use from an organization or company's budget
sovereign - (of a country) ruling itself เอกราช อำนาจอธิปไตย
wealth - how much money and assets a person or country owns
investment fund - invests money for other people
Sovereign Wealth Fund (SWF) - an investment fund owned by the government that invests money for the whole country (See Wikipedia)
international - ระหว่างประเทศ between countries
trade - the buying and selling of goods การค้าขาย
international trade - the buying and selling of goods between countries
official reserves - the foreign reserves officially recorded and reported to the public by the government
assets - things owned, especially property and money, for example: stocks, bonds, real estate, loans to others, or money สินทรัพย์ (See Economist glossary) ทรัพย์สิน
debt - an amount of money that you owe หนี้
sovereign debt - the amount that the government of a country owes others (the amount the country borrowed in the past and not yet paid back)
interest - payments made for the use of another's money for a period of time
interest rates - the percentage of the amount borrowed paid every year as interest (fee for using other people';s money)
weakening US dollar - depreciation of US dollar, decrease in value of US dollar compared to other currencies (US exports become cheaper and more attractive, exports of other countries become more expenseive and less attractive)
amendment - a change in the law
act - a law
Bank of Thailand Act - the law on how the central bank of Thailand operates
equities - stock shares in a company that represent partial ownership of the company หุ้น
stipulate - to state exactly how something must be or must be done ระบุ, ระบุเงื่อนไข
allocated - given for a special purpose or use
stabilise - to reach a state where there are no longer any major changes or problems ทำให้มีเสถียรภาพ
board - board of directors, the group of people who oversee the high level policy of a company or other organization
Bank of Thailand Board - the group of people who oversee the high level policy of Thailand's central bank (See Wikipedia)
meeting - when a group of people come together to discuss issues and make decisions การประชุม
risk - the possibility that something dangerous or unpleasant might happen ความเสี่ยง
supervised - overseen; watched over to ensure that things are done correctly อยู่ในการควบคุมดูแล
regulations - official rules that control the way that things are done ระเบียบปฏิบัติ ระเบียบ ข้อบังคับ กฎระเบียบ
shield - protects เกราะป้องกัีน (an object that police officers carry in order to protect themselves เกราะ)
liability - (legal) responsibility for something or someone ความรับผิดชอบ
liable - legally responsible for causing dame or injury มีความรับผิดชอบตามกฎหมาย
penalties - บทลงโทษ
fiscal - connected with the government budget and spending, i.e., public money เกี่ยวกับงบประมาณ
income - money that people receive from work or some other source, used for household consumption and savings
joint - belonging to or shared between two or more people ร่วม, ที่ร่วมกัน
business ventures - new and untested business projects (that might succeed and make steady profits and growth)
long-term returns - making money over long periods of time (a business that succeeds in the long run)
deputy - the person whose rank is immediately below that of the leader of an organisation รอง
excess - greater than is usual; too much of something มากเกินปริมาณที่พอดี
in excess of requirements - more than is required (by law)
backed - supported ให้การสนับสนุน
banknotes in circulation fully backed by foreign reserves
capital - money invested in a business (See glossary)
foreign capital - foreign investment, money from outside the country invested in businesses inside the country
inflows of foreign capital - foreign investment entering the country during a period of time ("portfolio investment" in the stock market can change quickly and is more volatile than longer-term "Foreign Direct Investment (FDI)" of foreign businesses setting up businesses and joint ventures in Thailand)
X separate from Y - X different from Y, not combined, not part of the same thing
entity - something which exists apart from other things, having its own independent existence
flexibility - can change easily and adapt to new situations and conditions as they occur ความยืดหยุ่น
improve - to make better ทำให้ดีขึ้น
X prefers X to Z - X likes Y more than Z
approach - a way of doing or dealing with something การจัดการกับปัญหา a particular way of doing something or thinking about something วิธีการทำให้ถึงจุดหมาย
challenge - something that needs a lot of skill, energy, and determination to deal with or achieve สิ่งที่ท้าทาย, การท้าทาย
issue - a subject or problem that people discuss or argue about ประเด็น
clear - easy to understand
guidelines - rules to help guide action แนวทาง นโยบาย
in terms of - as measured by, as expressed by
extent - size ขนาด
finalise decision - make the final decision (after spending a period of time considering which action to select)
proposed - suggested (but not yet chosen or decided upon)
submit - to formally give something to someone so that can make a decision about it ยื่น (เอกสาร) เพื่อการพิจารณา, ยื่น เสนอ (เอกสาร) ให้พิจารณา
efficiently - done in an effective, organised way อย่างมีประสิทธิภาพ
concentration - think about one thing (very carefully and intensely), rather than spread attention over many things without care)
expected - believe will happen คาดว่า (จะเกิดขึ้น)
critical - extremely important because a future situation will be affected by it สำคัญยิ่ง
state - government รัฐ
complicated - has so many parts connected in different ways that it is difficult to understand (for example, a complicated machine or a city with a complicated system of streets) ที่ซับซ้อน
variety - many different types of things or people ความหลากหลาย
ensure - to make certain that something happens or is done รับรอง ให้ความมั่นใจ ให้การยืนยัน
sufficient - enough พอเพียง
portion - a part of something ส่วน
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