Dollar-baht futures trading to be permitted next year

Securities houses will be permitted to conduct wholesale trading of foreign currencies by the middle of the year.

 Finance Minister Thirachai Phuvanatnaranubala said yesterday after a discussion with Bank of Thailand Governor Prasarn Trairatvorakul that he personally wanted the trading to start within three months, but Prasarn had asked for more time.
 

 Investors will be able to buy dollar-baht derivatives for risk management. Non-residents will not, however, be allowed to trade dollar-baht derivatives, as the authorities want to ensure there is no negative impact on capital flow, or a large level of currency speculation, he said.
 

 Securities houses will also be allowed to provide a wholesale foreign-exchange service for clients, in order to facilitate their services to foreign stock investors.
 

 The new service is expected to commence in the middle of next year. However, brokerages will not be allowed to conduct retail foreign-exchange trading as banks do, said the finance minister.
 

 Presently, securities firms have to buy foreign currencies from banks.
 

 “Securities firms should also in the long run be permitted to conduct all businesses, as foreign investment banks can do,” he said.
 

 Thirachai also mentioned a discussion with Prasarn about granting permission for foreign banks to open more branches in the Kingdom, which would add competition in the industry as Thai banks’ net interest margins are higher than those of foreign institutions.
 

 He said Prasarn was concerned about foreign banks’ readiness to do so. However, the minister said he had told the central-bank chief that he was convinced they were ready to take this step.

Options for tackling huge debt
 

Thirachai said Prasarn had told him that in the next five years the central bank would be faced with negative capital of Bt689 billion.
 

 The estimated losses are largely due to its effort to keep the baht from strengthening further against the US dollar, in order to maintain export competitiveness in the global market. Losses to date have been incurred as a result of the Bank of Thailand buying more and more dollars, as well as the value of the greenback depreciating.
 

 If the Finance Ministry were to transfer the debts of the Financial Institutions Development Fund to the central bank, the bank’s balance sheet would be Bt1.5 trillion of negative capital, Thirachai said, adding, “So, we just stopped talking about debt transfer to the central bank.”
 

 The minister said he had asked Prasarn to consider the option of the Bank of Thailand paying the interest on the FIDF debt, while the Finance Ministry paid off the principal of Bt1.1 trillion.
 

 So far, the ministry has shouldered interest payments of about Bt60 billion annually. The interest cost is very high and significantly affects the government’s annual budget, said Thirachai.
 

 The central bank is currently responsible for the principal repayment, but because it operates at a loss, it has been unable to service this debt-overhang from the 1997 financial crisis.
 

 Thirachai said central banks in some other countries also operated at a loss and their capital base turned into red territory. However, they are still be able to do their jobs as long as investors have confidence in them, he added.