Rise of the baht: Bank of Thailand responds to rumors of gray money

The baht's rise intrigues markets: the Bank of Thailand dismisses the role of 'net errors and omissions' and points instead to a weak dollar and gold.

Since the start of the year, the baht has appreciated by around 7% against the dollar.

Foreign capital has recorded a net outflow from the Thai stock market, but a net inflow into the bond market.

Between September 1st and 17th, foreign investors recorded a net capital outflow of approximately $100 million from the Thai stock market.

The local bond market, on the other hand, recorded a net inflow of $534 million, according to the central bank.

However, observers are wondering whether the strengthening of the baht could be partly attributed to an increase in net errors and omissions (NEO) in the balance of payments.

Some speculate that this increase could be linked to unidentified or "gray" money.

What are NEO?

Chayawadee Chai-anant, Deputy Governor in charge of relations with businesses at the central bank, stated that the NEO refer to statistical discrepancies in the balance of payments.

This term refers to transactions between residents and non-residents that cannot yet be classified into specific categories.

These activities may involve trade in goods and services, changes in assets between Thai residents and foreigners, or cross-border payments and foreign exchange operations.

In practice, it is difficult to capture all transactions comprehensively or in real-time.

Therefore, NEO generally result from two main factors:

1. The late availability of data, such as foreign direct investment or the repatriation of profits by foreign companies, which rely on financial statements submitted to the Department of Business Development.
2. Incomplete or inaccurate data, such as the wide range of tourism expenditure that is initially estimated using models, then compared with survey data from the Ministry of Tourism and Sports.

The central bank typically publishes preliminary annual balance of payments data in March of the following year, followed by two revisions:

One in September of the same year and the other in September of the following year.

For example, the data for 2024 was first released in March 2025 and will be revised in September 2025, then again in September 2026.

Were the 2024 FDI considered high and a contributing factor to the appreciation of the baht?

To determine if FDI is high, it is more relevant to evaluate it in relation to total international trade.

Countries with larger volumes of cross-border trade and investment generally record higher FDI.

According to Ms. Chayawadee, the appreciation of the baht against the dollar was not the result of an increase in FDI in the balance of payments, as these inflows have already been recorded in the balance of payments accounts.

According to the latest revisions of the central bank's data, the amount of NEO in the balance of payments has been steadily decreasing since last year.

In the revision of the data for September 2024, the NEO amounted to $7.3 billion, or approximately 230 billion baht, which is less than half of the preliminary figure for March 2024, which was $15.2 billion, according to the central bank.

It stated that this decline reflected three main factors:

1. Decrease in the total value of imports.

The Customs Department adjusted the prices of petroleum imports to reflect the actual data of importers, which were lower than previous estimates.

This increased the current account balance and reduced the net external position by approximately $2 billion.

2. Adjustments to data on foreign investors' investments in Thai businesses

These adjustments, made on the basis of financial statements submitted for commercial development purposes, reduced the net external position by approximately $2.7 billion.

3. Extension of payment terms for imported goods to the private sector

Trade creditors extended payment terms for imported goods to the private sector, thereby easing the burden of commercial credit repayment in 2024.

This reduced the net external position by approximately $4.2 billion.

The revised NIIP for the balance of payments in March 2025 was approximately $2 billion, down from $7.3 billion in September 2024.

As a percentage of Thailand's international trade, NIIP was 1% in 2024, a level lower than the ten-year historical average of 1.3% and the global average of 2.4%.

Thailand's ratio was also relatively low compared to that of five other middle-income Asian economies:

China (2.8%), Kazakhstan (2.1%), Malaysia (1.3%), Mongolia (1.2%), and Indonesia (0.3%).

If we compare Thailand to Indonesia, the latter's NEO ratio was much lower, despite a higher gross domestic income.

According to the Bank of Thailand, each country's NEO ratio also depends on the openness of its economy.

In addition, commodities represent a larger share of Indonesia's balance of payments than Thailand's.

Therefore, Thailand's base for calculation is larger, resulting in a lower ratio, according to the Bank of Thailand.

Are NEOs considered fresh money this year?

The NEOs in question here do not represent a new influx of foreign currency this year.

It is rather a component of the 2024 balance of payments that has already taken place.

Since these transactions cannot be classified into specific activities, they are recorded as NEO.

For example, a foreigner buys an apartment in Thailand and registers as the owner, while his Thai wife makes the payment.

In this case, the transaction could be recorded as NEO because the owner and the payer do not match, said Ms. Chayawadee.

Recording a transaction as NEO has no additional impact on the currency, as the effect on the baht's movement has already occurred when the transaction took place.

The recent strengthening of the baht against the dollar has been attributed to three factors:

1. A weaker dollar, investors expecting a continuation of rate cuts by the Federal Reserve
2. Increased investor confidence following greater clarity in Thai domestic policy
3. The support of the gold trade in Thailand

See: Thailand: baht rise linked to gold exports to Cambodia

The central bank highlighted the importance of distinguishing between OEF in the balance of payments and "grey money".

If it is possible that some OEF involve grey money, this would require official verification, noted the regulator.

How does the regulator monitor grey money?

The central bank has reaffirmed that it does not want domestic businesses or transactions to involve illicit financial activities or corruption, and that it is implementing measures to prevent them:

1. Promote digital finance

Encourage the use of services such as PromptPay to ensure that transactions leave a traceable digital footprint.

2. Apply customer due diligence regulations

These include the "know your customer", "customer due diligence" and "enhanced due diligence" guidelines.

These measures also concern mule accounts and ensure that financial institutions comply with the requirements of the Anti-Money Laundering Office and regulations on terrorist financing.

3. Carefully consider proposals for a financial center

Some observers have expressed concern that a center subject to less stringent regulation could create loopholes allowing illegal financial activities.

The central bank insists that these loopholes be addressed in advance.

4. Adopt a cautious stance towards cryptocurrencies

The regulator wants to monitor the use of these assets through unregulated channels, as they pose a higher risk of money laundering due to the difficulty of tracking and verifying.

See also:

Thailand: a strong baht and regional competition are driving tourists away

Baht too strong: Thailand loses ground to Vietnam

The rise of the baht threatens tourism in Thailand

Source : Bangkok Post