The Bank of Thailand is likely to allow local securities to be settled in foreign currencies, but the process will be done in stages to ensure the financial market is not affected, says a central bank official.
Pongpen Ruengvirayudh, the central bank’s deputy governor overseeing monetary stability, yesterday said thorough studies on cash flow and impacts on the financial market must be assessed before granting approval to trading of local securities in foreign currencies.
"Our concerns are within the areas of foreign exchange, short- and long-term interest rates and rate of return," she said.
It would be ideal to allow foreign investors to trade local securities in US dollars without any involvement with the baht, Mrs Pongpen said, adding that such multiple-currency settlements in major financial centres had been involved with local currencies.
She said if the studies showed the positive effects of the move outweighed the negatives or the negative effects were manageable, then approval of multiple-currency settlement was possible.
The Securities and Exchange Commission recently said it was seeking central bank approval to allow local securities and gold in the planned physical gold exchange to be settled in foreign currencies, starting with the dollar and China's yuan.
Multiple-currency settlement is considered crucial for the SET to achieve its goal of becoming a regional exchange, beefing up the bourse's competitiveness and luring foreign investors worried about investment risk from foreign exchange fluctuations. Some Asean bourses such as the Singapore Exchange have already adopted multiple-currency settlement.
Such settlements should not cause volatility in foreign currencies or interest rates, as Thai citizens would be adversely affected by interest rate fluctuation, Mrs Pongpen said.
The central bank must conduct a simulation study about effects on the financial market stemming from possible financial transactions using multiple-currency settlement and the consequences of hefty financial transactions.
It is debatable whether foreign investors investing in Thai equities are interested only in equity investment or if their investment is based on both equities and foreign exchange, Mrs Pongpen added.