While most Asian currencies, including the Korean won, remain weak, the Thai baht alone has surged to its highest level in four years, showing a "solo rally." It has risen nearly 8% against the dollar so far this year.
The surface reason is a surge in gold transactions, but analysts say the real driver is about 500 billion baht (about 20 trillion won) in "grey money" crossing the border and shaking the Thai economy. With the currency appreciating too much, tourism and manufacturing, Thailand's key industries, have taken a direct hit.
According to Reuters and local outlet The Nation on the 23rd, the baht has strengthened this month to a four-year high. The Bank of Thailand (BOT) cited gold transactions and a current account surplus as reasons for the baht's strength. Thailand has an active market for peer-to-peer gold transactions. Its goldsmithing is advanced, and gold is transacted like an important export item. When gold prices soar as they have this year, individuals and shops in Thailand sell their gold on the international market to earn dollars. In the process of exchanging those dollars into baht for use in Thailand, the baht naturally appreciates.
However, experts noted that gold transactions alone cannot explain the baht's exceptional strength. Reuters, citing experts, pointed to "money laundering" as the real cause of the baht's surge. Transnational crime syndicates based in Southeast Asia are said to be bringing illegally obtained cryptocurrency into Thailand, converting it into baht, and laundering it by purchasing safe assets such as gold or real estate. Digital asset experts estimated that funds laundered in this way could reach 500 billion baht. In particular, gold transactions with Cambodia have surged abnormally.
Evidence backing this claim appears in Thailand's balance of payments statistics. The balance of payments, the national foreign exchange transaction ledger, includes an item called Net Errors and Omissions (NEO). It is a kind of "adjustment item" that shows flows of funds not captured in the statistics. When this figure is abnormally large, it is reasonable to suspect an underground economy or illegal capital inflows. Thailand's NEO jumped from 180.4 billion baht in 2023 to 530.8 billion baht (about 21 trillion won) in 2024, nearly tripling.
Suphat Saitsua, chair of the National Economic and Social Development Council (NESDC), said, "This money comes from grey businesses. We do not know where the money comes from," adding, "The Central Bank should investigate this issue, not online gold transactions."
The "strong baht" is directly hitting the two pillars that support the Thai economy: exports and tourism. As of 2019, 18% of Thailand's gross domestic product (GDP) came from the tourism industry. That is far higher than a little over 3% in Korea. When the currency appreciates, foreign tourists face higher travel costs. In the export sector, Thai products become more expensive and less competitive.
Kasikornbank researcher Kobsit Silpachai told Reuters, "The baht's strength has come at a bad time ahead of the summer peak tourism season," adding, "Holiday travelers have turned to other countries in search of better value."
The number of foreign tourists visiting Thailand this year has dropped noticeably compared with before. According to the Tourism Authority of Thailand (TAT), from Jan. 1 to Sept. 21 this year, about 23.45 million foreign tourists visited Thailand, down 7.44% from the same period last year. In particular, coupled with the weak U.S. dollar, American tourist numbers have been declining since May. TAT projected that if this trend continues, tourism revenue this year will fall 15% to 17% short of the target.
While Thailand struggles with a strong baht, neighboring Vietnam, which competes for tourists, has seized part of Thailand's position by leveraging low costs. Vietnam has attracted nearly 14 million foreign tourists annually through aggressive marketing, including expanding low-cost flights and easing visa policies. Experts said tourists who had planned to travel to relatively pricier Thailand are turning to Vietnam, Japan, or China.
As the situation worsened, the new Thai government led by Prime Minister Anutin Charnvirakul declared a "war on the strong baht." A multi-agency response team involving the Ministry of Finance, the Central Bank, and the Securities and Exchange Commission is reviewing measures to counter the baht's strength.
The Central Bank is considering imposing taxes on gold transactions or requiring settlement in dollars only when gold is transacted, to reduce demand for exchanging dollars into baht. Assistant deputy governor Chayawadee Chai-Anan of the Central Bank said, "Taxing gold will not solve the strong baht issue, but it will reduce upward pressure on the currency." However, experts said that unless Thailand blocks the inflow of "black money," seen as the fundamental cause, such steps will be only stopgap measures.