The Thai baht has appreciated by nearly 8% against the US dollar since the start of the year, making it the strongest performer among Asian currencies, and while at first glance, this might appear a welcome sign of strength, the reality is far less comforting.

The baht’s rise is not the product of vigorous growth, firm monetary policy, or stable inflation as is the case in a robust economy. Instead, as the Bangkok Post reports, it is more the result of factors that remain opaque, and increasingly troubling.

Economic fundamentals in Thailand hardly justify a stronger currency. Growth has been tepid, inflation low, and interest rates insufficiently active to pull in speculative capital both at home and from overseas. There really is no reason for the baht to be performing as it is.

Because of this - the absence of a rational explanation as is seen as most currencies strengthen – scrutiny has shifted towards the balance of payments. Here, the country’s persistent current account surplus emerges as one driver. More contentious though is the “errors and omissions” line, where unexplained inflows averaging around $3bn per quarter have been recorded over the past two to three years, the Post adds.

Chairman of the National Economic and Social Development Council (NESDC) and economist Supavudh Saicheua, has sounded the alarm. In doing so he warned that these inflows could be distorting the currency. He has even hinted at the legality of some transactions, urging regulators to investigate, the report continues. His intervention has naturally sharpened tensions between the NESDC and the Bank of Thailand (BoT).

The BoT, however, has been quick to dismiss such concerns with assistant governor, Chayawadee Chai-anant maintaining that “net errors and omissions” lack the ability to drive currency appreciation. The central bank points instead to capital flows, noting that $1.2bn of net inflows into Thai bonds this year have been offset by equity outflows; something the bank sees as investors seeking yield, not a symptom of distortion, the Post says.

As the dispute plods on, the finance ministry and the BoT are also weighing a tax on online gold transactions denominated in the baht as gold exports continue to rise, having already surged by 69% in the first seven months of the year to reach around THB254bn or $8bn. In addition, gold shipments to neighbouring Cambodia have raised eyebrows, particularly given the recent hostilities between Bangkok and Phnom Penh over territorial claims in the east of Thailand.

Whether or not taxing such trades would help address the baht’s rise is still open to speculation. At best, according to the Post, it risks being seen as a short-term fix that skirts the underlying question of why the currency is appreciating so sharply when basic economic fundamentals suggest it should not?

For now, in an ever politically turbulent nation with its 17th prime minister in 20 years at the helm (acting and elected), the baht’s rise is a symptom. The underlying malaise is an absence of political stability and policy co-ordination at the top.