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Published on October 4, 2007

Academics and bankers backed the Bank of Thailand-sponsored Currency Bill, which the Finance Ministry proposed to the National Legislative Assembly yesterday. They did so in spite of some concerns over increased investment risks related to the central bank's reserve management.

The NLA passed the Financial Institutions Business Bill in its first reading yesterday, even though some members commented on the harsh punishment measures in the bill and asked the subcommittee to revise these provisions during further interpretation.

As of press time, however, the NLA had yet to debate the Currency Bill.

"It's necessary for the law be amended to keep up with the changing world," said Somchai Jitsuchon, a director of the Thailand Development Research Institute.

He said that, in particular, the amended version of the Currency Act would give the Bank of Thailand more flexibility to manage foreign-exchange reserves. The current law has created an economic cost to the country because of limitations imposed on the central bank in this respect, he added.

The draft bill amending the Bank of Thailand Act and the Deposit Insurance Agency Bill will be presented for NLA consideration later.

Somchai said he supported the four bills because they had been written based on acceptable principles. The laws would provide more diverse tools for fiscal management than what is currently available.

Addressing the concern that the Bank of Thailand Bill will give overwhelming power to the central bank, Somchai said the NLA could propose any amendments. He added that the law should clearly define the role of the central bank.

Speaking before the NLA debate, he said: "If the NLA refuses to endorse the bills, there shouldn't be a big impact. But Thailand will lose an opportunity to use monetary tools in fiscal and monetary management."

Commenting on the Financial Institutions Business Bill, Bangkok Bank president Chartsiri Sophonpanich said the draft law was suitable for the current fiscal situation.

"I believe that it would be beneficial to Thai financial business," he said.

He also supported a provision in the bill that allows foreigners to hold up to 49 per cent in financial companies.

Thai Bankers Association chairman Apisak Tantivorawong said the revised Currency Act would benefit the banking system overall. It would allow more flexibility for banking operations, though some parts are not clear enough: for example, the definition of related parties between banks and borrowers.

Some of the wording about punishment in the draft is quite harsh because it uses the phrase "jail and fine" instead of "jail or fine" in the current Act, he added.

Earlier in the day, Bank of Thailand Governor Tarisa Watanagase said the central bank was ready to amend the draft Currency Act to mollify groups who were concerned over the central bank's rising investment risk.

She insisted that the central bank wanted to work with the best possible legisaltion for the country's sake and would clarify the implications of the draft to anyone who does not understand it well.

The central bank might add more content to the draft to clarify the investment issue, she said.

Some interest groups are concerned about increasing investment risks, as the bill allows the central bank to issue financial instruments.

Tarisa said the new transactions did not create increased risk as feared, because they would continue to require the same amount of collateral for borrowing as the current law.

"The current act has been implemented for decades and has a lot of limitations, so we need to amend it to be in line with the new financial environment," she added.

Anoma Srisukkasem,

 Wichit Chaitrong

 The Nation