Fate Of The Baht In The Hands Of One Person

[samran]

Regarding a peg of the baht, which if it happens I would guess would be about 35 per USD, why is that such a bad idea? China doesn't allow free float of their currency, and an argument can be made that Thailand is now suffering from speculation that is largely driven by the real strength of the Yuan. Now a peg that is way way off, like when the Argentina Peso was 1 to 1 with the dollar when it was really worth 1/3 of a dollar is dangerous, what's wrong with a less radical peg?

Cause then effectively, the bank of Thailand has to second guess speculators (as you see is happening now). The job of a central bank, especially a smaller one like Thailand, should be to target inflation and ensure macro economic stability for the country. Trying to defend dying and increasingly uncompetitive industries isn't part of the BOT's remit.

Better to let the baht float, at whatever level that may be, and let the speculators speculate against themselves.

[topfield]

Two points to add in this running saga

1. If the government decide to peg the baht at 36...a possible scenario , this should be no problem. Tarisa needs to take her senior staff and pay a visit to Kuala Lumpur where she will learn the mechanics of a very recent and successful pegging. [indeed it was Tanong's visit to Singapore in January 1998 and what he learnt there which is reputed to have saved and turned around the baht as he found out and applied Singapore's secret weapon against the speculators....a $50M limit on all fx transactions without the Monetary Authority's approval

2. We have forgotten the experience of Japan which for years tried to hold down the value of the yen !

Remember clearly how this resulted in Japan being flooded with Yen and how the Bank of Japan mitigated the problem by issuing bonds to soak up the excess liquidity.