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Published on August 17, 2007

Some observers have been commenting that the yawning gap between onshore and offshore rates provides plenty of opportunity for arbitrage.

From Sunday to Tuesday, the central bank surveyed offshore markets, including Singapore, New York, London, Phnom Penh and Vientiane, and compared their exchange rates with the domestic rate. It found that no one could gain from buying dollars abroad and selling them domestically either in the legal or black market. Also, no one could profit from using credit cards or making cash withdrawals abroad.

For example, someone takes baht out of the country and buys US dollars at Singapore's Changi Airport at Tuesday's rate of Bt34.20. However, he would have to sell dollars for baht in the home market at Bt33.28, which was more expensive than the foreign market. As a result, he loses Bt0.92 per dollar.

His bottom line could sink about Bt0.72-7.57 per dollar in the red in other countries because he incurs a cost of Bt34.00-40.85 for greenbacks and gets only Bt33.28 when selling them here.

The speculator could not exploit the gap in third markets such as London either. He must buy pounds based on the baht/pound rate before buying the dollar with the pound.

Suchart Sakkankosone, director of the Financial Markets Operations Group, said the baht could not be arbitraged because retail customers exchange currencies at counter rates rather than interbank rates. They could not make a profit even in the underground market, which was Bt0.20 cheaper.

He said speculators could take only Bt500,000 into neighbouring countries and Bt50,000 into other countries per time. They were also required to declare sources of dollar income.

Thai shoppers spending via credit cards abroad must pay their balances based on the onshore rate. Earlier, they could pay for their charges at the offshore rate, but all banks and card issuers have recently changed their calculations to using the onshore rate.

Yesterday the gap narrowed with the offshore rate at Bt32.50.

Governor Tarisa Watanagase said that was a result of the central bank allowing non-residents with underlying transactions to settle their swap transactions in the onshore market.

Suchart said at least Bt25 billion of swap transactions by non-residents in the offshore market had already received approval for the onshore market. As a result, offshore demand for the baht was low.

Anoma Srisukkasem

The Nation