Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula has said a revaluation of the Chinese yuan would be very helpful to Thailand as it struggles to stabilise the baht.

Pridiyathorn told Dow Jones Newswires in an interview that it would be a great help if China allowed its currency to rise against the dollar, so that other countries with more flexible exchange-rate regimes would not have to shoulder so much of the burden of the dollar's necessary adjustment to the huge US trade and budget deficits.

"It would help a lot [if China revalued the yuan], but it would depend on the degree of revaluation," he said.

Pridiyathorn and the Bank of Thailand (BOT) last week faced sharp criticism after the government announced a 30-per-cent reserve requirement on all foreign capital inflows, resulting in a 15-per-cent plunge on the stock market the very next day.

Tuesday's free fall was the biggest one-day loss in the Stock Exchange of Thailand's 31-year history.

The central bank redefined the capital-control policy the following day to exempt stocks and certain other investments from the reserve requirement.

According to Dow Jones, the yuan, which is fixed in a narrow band against the dollar and other units, is often viewed as undervalued by many of China's trading partners.

With the baht up 17 per cent against the dollar since the start of the year, the authorities felt it was necessary to curb massive foreign capital inflows to stem the currency's rise to protect exporters.

Defending the controversial measure, Pridiyathorn said: "This [withholding requirement for capital inflows] is a short-term measure. It's fully within the authority of the Bank of Thailand governor [to ease or revoke the measure]. With approval of the Monetary Policy Committee, they can change it at any time. They have the liberty and flexibility to correct [adjust it to market conditions] it at any time."

Asked what criteria the central bank would use to decide when to revoke the withholding requirement, the finance minister said it would happen when the objectives had been achieved and the baht was moving back into line with the currencies of regional trading partners.

"It's not the level of the baht, it's the level of appreciation. If currencies of our [export] competitors appreciate more or less at the same level as ours, I don't think we would need this measure any more," Pridiyathorn said.

Speculative investors who have been targeting Thailand will likely shift towards other countries with even more-flexible exchange rates, he said.

There are many ways that those countries can try to mitigate the effects of the overwhelming flows, but they may be looking at Thailand's measures, he added.

Prior to the initial imposition of the measures on Tuesday, the baht had reached a level where Thailand's export competitiveness was being affected, he said.

The baht hit a nine-year high of 35.06 to the dollar early last Monday.

Pridiyathorn said the central bank had to act because, prior to the withholding requirement, capital inflows were so huge that intervention was not enough.

Given the stock market's unprecedented fall on Tuesday, the finance minister said: "We switched it very fast because we care about foreign investors."

The BOT has allowed onshore institutions to set up special non-resident accounts for securities, which are exempt from withholding, but the funds in the accounts can be used only for trading in equities.

Inflows related to foreign direct investment, property, tourism, education, medical, transportation, diplomatic and myriad other areas are also exempt from the withholding, but documentation must be supplied to onshore institutions as evidence for transactions worth more than US$20,000 (Bt726,000).

However, offshore financial institutions are still reluctant to trade in foreign exchange with onshore institutions due to the burden of documentation, and many equities analysts are still predicting sluggish inflows and possibly heavy outflows in the months to come due to the perceived unpredictability of Thailand's regulators.

"The policy is still there and clear. It is intended to reduce capital inflows that put pressure on the baht [beyond those applied to the currencies of regional trading partners]," Pridiyathorn said.

"The ones who don't believe in our policy just sold and didn't buy back, and they made losses. Of course they are upset, and when they are upset they will criticise anything," he said.

"Once we get rid of these measures [when the currency is back in balance], I think the whole world will understand."