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Thailand relaxes foreign exchange (FX) regulations as it seeks to help the private sector cut costs and improve risk management.
The Bank of Thailand (BOT) has issued further reforms to its foreign exchange (FX) regulations, as it seeks to help the private sector cut costs and improve risk management.
In a statement released on April 18, the BOT said the new regulations will allow Thai companies to conduct FX transactions with greater flexibility for both cross-border and domestic purposes.
The new rules then came into effect on April 19, one day after the publication of the BOT’s statement in the government gazette.
What’s new?
The first change under the new regulations is that the BOT will remove the cap on lending FX to unaffiliated companies and on the purchase of immovable properties abroad. Previously, this cap was set at $50m per year.
The BOT will also allow outward FX transfers so that a person can deposit funds into an overseas account to meet payment obligations, without prior approval from the central bank.
Secondly, the new regulations will allow Thai companies to purchase FX for domestic transfers whenever necessary, such as for payment of goods whose price is linked to the global market. Prior to this relaxation, such transfers were only permitted through a specific FX deposit account.
There are also provisions in the new regulations that will enable Thailand-based companies to manage their FX risk exposures using hedging techniques without prior approval from the BOT.
Such practices include: hedging FX exposures arising from domestic payments for goods whose price is linked to the global market; hedging on behalf of other resident-affiliated companies; hedging of anticipated FX revenues or expenses with a tenor longer than one year; and hedging balance sheet exposures.
As the BOT noted in its statement, opening up these practices will enable importers, exporters and suppliers to manage their foreign exchange risks more effectively.
The final update to the regulations is designed to ensure that Thai businesses are not overly burdened by paperwork when conducting FX transactions.
Under the new regulations, customers of commercial banks who have already passed the banks’ know-your-business checks will not be required to submit supporting documents to make regular FX transactions. Previously, supporting documents had to be submitted to the BOT for each transaction.
By cutting out such paperwork, the BOT hopes to improve the speed of FX business transactions, reduce the cost of regulatory compliance and help stimulate online FX channels.
2020 and beyond — Thailand’s payments modernisation plans
The new regulations are part of a series of updates first launched in 2020, and are also the first major change to Thailand’s FX rules since the BOT committed to the FX Global Code in January this year.
The FX Global Code, first published in 2017 and last updated in July 2021, is a set of best practice guidelines designed to promote a robust, fair, liquid, open and appropriately transparent wholesale FX market.
Its latest iteration was developed by central banks and market participants from 20 jurisdictions.
Both the commitment to the FX Global Code and the BOT’s new regulatory changes signal Thailand’s continued focus on payments modernisation and reform.
Over the last few years, the BOT has endorsed the adoption of the international payment standard ISO 20022, and has worked to enhance cross-border connectivity by expanding quick response (QR) code payments through payment linkages with other regional markets.
It has also encouraged payment data integration and promoted modern fintech and regulatory practices, as noted in the BOT’s 2020 Payment Systems Report.
Domestically, the success of instant payment system PromptPay transformed the country into an increasingly digital-first payments market.
