Traders on board with US$ valuation
Major gold traders have agreed to use the US dollar in order to limit volatility in using the baht, says a Bank of Thailand senior executive.
The central bank agrees in principle with major local traders using only the dollar for gold trading and settlement to mitigate foreign exchange volatility in the trade.
The move is expected to be implemented by year-end, said Vachira Arromdee, assistant governor for the financial market operations group.
The standard weight unit for measuring gold in Thailand is the traditional baht unit, with one baht weighted gold equivalent to 15.244 grammes or 0.4901 troy ounces.
The standard fineness for gold is 96.5% in Thailand.
The central bank recently asked foreign exchange dealers if they could quote gold prices in dollars instead of baht for outbound and inbound shipments, as well as for the sale of imported gold to other local dealers, said a source familiar with the issue.
With gold prices quoted in dollars, import and export transactions made by precious metal dealers would no longer have any effect on the baht, with no need to convert from dollars to baht and vice versa.
The baht continues to be volatile as the outbreak pressures money market and foreign exchange rates across the globe, said Ms Vachira.
"We cannot predict the outbreak or foreign capital flows in the second half [because of] both internal and external situations. Amid this uncertainty, the baht is expected to be volatile in the second half, continuing from the first half," she said.
According to Bank of Thailand data, foreign capital tallied net outflows of $10.5 billion for the first five months.
The central bank also plans to permit gold traders to apply for foreign currency deposits (FCDs) in preparation for gold trading in the dollar, an attempt at managing foreign exchange volatility.
Tanarat Pasawongse, chief executive at Hua Seng Heng Group of Companies, said the central bank may be worried that a surge in gold prices could strengthen the baht's value.
Trading gold in dollar terms may require an adjustment period, said Mr Tanarat.
For example, the Exchange Control Act will have to be amended as it stipulates that transactions in Thailand must be made in baht.
Commercial banks, the major dealers of foreign exchange, also have to set up a foreign exchange system to manage transactions of people wanting to buy gold in dollar terms.
"Not all Thais have FCD accounts. People who want to exchange their baht for dollars are required to fill out an exchange form at bank counters," he said.
The spot gold price reached an all-time high of $1,981.13 per ounce, while the price of domestic bullion was sold at 29,300 baht per one baht-weight gold on Tuesday.