Although Asian central banks have diversified their international reserves, the Bank of Thailand insists it will keep the current composition of foreign reserves unchanged.

Governor MR Pridiyathorn Devakula said the BOT had found that the selected composition which has been used for four years had benefited the country in the long haul, and had been set following a study of the patterns of the country's international trade.

"We selected the best option for the country in the long term. It is not easy to change things on a day-to-day basis," Pridiyathorn said.

Last year, the BOT said it had diminished the US dollar's proportion of the portfolio a few years before, along with other central banks, when the value of the greenback had declined dramatically as a result of the US twin-deficit problem.

According to Societe Generale economic research, Asian central banks have recently reduced the proportion of the dollar in their international reserves from 70 per cent in the first quarter of 2002 to 60 per cent in the fourth quarter of 2004.

It said developing countries had increased their holdings in Euro-denominated assets from 22 per cent to 30 per cent of the total.

"They used the massive intervention of Japan in the foreign exchange markets as an opportunity to commence diversifying out off the US dollar by stealth," said the research report.

The share of US treasury bonds in the Chinese central bank's reserves shrunk from 41 per cent in June 2004 to 30 per cent in October 2005.

South Korea reduced purchases of US treasury bonds and became a net seller of them during 2004, said the research report. Taiwan has also been turned into a substantial seller of such bonds instead of an active buyer.

Pridiyathorn said the BOT was obliged to invest only in secured government bonds issued by substantial countries, aside from gold and foreign currencies.

It was reported earlier that the BOT was to amend the Currency Law to widen its authorisation of investment in other secured securities sold in major countries. However, there has been no further progress.

Asian central banks, particularly China, have become big creditors, holding two-thirds of the world's foreign exchange reserves. Half of the world's reserves are held by the Chinese, Japanese, Taiwanese and South Korean central banks, according to the research report.

The accumulation of reserves has been a result of Asian central banks' intervention to keep their currencies depreciating in line with the level of capital inflow. Some central banks have intervened in the forex market to maintain their pegged currencies.

The BOT has also intervened in baht trading in times of too much fluctuation, in a bid to facilitate exporters and importers.

The US$11.5-billion (Bt432.8 billion) capital inflow over the first four months of this year has put additional pressure on the appreciating baht compared with other currencies in the region. Pridiyathorn admitted officially at the end of April that the BOT had intervened in the currency market.

He said yesterday that during the current political vacuum he would continue to stabilise the baht to encourage exporters and importers and to maintain economic stability and growth.

The BOT chief said he had not set a target for international reserves as they have been at an appropriate level, standing at $57.2 billion as of April 28.

Anoma Srisukkasem

The Nation