does the baht go down during tourist season

[saengd]

1 hour ago, yogavnture said:

if 21 percent gdp is from tourism couldnt they manipulate the baht during high season

Foreign currency inflows from tourists are high but only USD matters since that is the currency against which BOT manages its floating peg. Inflows of Pounds, Euro's and whatevers don't impact the THB/USD exchange rate, inflows of USD are not very large. China supplies most tourists and Chinese typically don't exchange USD for Baht, instead they trade directly via the Yuan, I would guess USD inflows from tourism are only something like 10% or so.

[Anotify]

What's 2 pennies to the Bth? 

Unless you come here already broke. 

[brokenbone]

3 hours ago, Anotify said:

What's 2 pennies to the Bth? 

Unless you come here already broke. 

it does make a difference if you live here

and bring 1/2+ million worth of baht year after year

[lkn]

10 hours ago, saengd said:

Foreign currency inflows from tourists are high but only USD matters since that is the currency against which BOT manages its floating peg

It has a basket of 25 currencies, but I think you are conflating things.

 

With everything else being equal, inflow of foreign money (doesn’t matter which currency) creates increased demand for THB and therefore the value of THB will go up, as the price is based on demand.

 

However, BOT can intervene, and this is where the peg comes in, which is based on the main trading partners of Thailand, and if the THB moves too far away from the peg then it may hurt the economy, which is when BOT would intervene. Although intervention may not always be effective, and they could also change their policy, as it is often costly trying to enforce a currency peg when the market disagrees.

 

[saengd]

3 hours ago, lkn said:

It has a basket of 25 currencies, but I think you are conflating things.

 

With everything else being equal, inflow of foreign money (doesn’t matter which currency) creates increased demand for THB and therefore the value of THB will go up, as the price is based on demand.

 

However, BOT can intervene, and this is where the peg comes in, which is based on the main trading partners of Thailand, and if the THB moves too far away from the peg then it may hurt the economy, which is when BOT would intervene. Although intervention may not always be effective, and they could also change their policy, as it is often costly trying to enforce a currency peg when the market disagrees.

 

Increases demand yes, increases value no, unless exchanged for USD, an extreme example:

 

If the entire demand for THB from tourism came from Zimbabwe dollars, the impact on the USD/THB exchange rate would be nil!

 

Agreed there are 25 currencies in the basket and agreed on intervention but that intervention is only against the value of THB against USD since USD is a reserve currency against which the THB managed float is valued.

 

It's worth mentioning also that intervention will always be effective since THB is a restricted currency and BOT and not the markets has sole control over its value, unlike other currencies that are freely convertible.

 

For others who may not understand: the foreign currency reserves are held in 25 different currencies but denominated and reported in USD.

Edited December 24, 2019 by saengd

[saengd]

"It's worth mentioning also that intervention will always be effective since THB is a restricted currency and BOT and not the markets has sole control over its value, unlike other currencies that are freely convertible".

 

To clarify.....normal day to day intervention will always be effective, that is not to say that extreme and radical intervention would be.

[PatOngo]

Yes the baht does go down at tourist season, down the toilet at beer bars and go go joints, down the pockets of sleazy Thai rip off merchants, so...………...….BE CAREFUL! 

[lkn]

9 hours ago, saengd said:

If the entire demand for THB from tourism came from Zimbabwe dollars, the impact on the USD/THB exchange rate would be nil!

If that was the case, you can be sure that people would start to buy up THB in other currencies and exchange them for Z$ (sell the THB to Zimbabweans) as they would be able to sell them cheaper than the Z$/THB pair (arbitrage).

 

Stated more formally: If Z$/THB changes but USD/THB stays the same, there is money to be made from going USD/THB → THB/Z$ → Z$/USD.

 

This of course assumes that Z$ is a reliable currency, but it would have to be, if it became responsible for all of Thailand’s foreign inflow.

[saengd]

1 hour ago, lkn said:

If that was the case, you can be sure that people would start to buy up THB in other currencies and exchange them for Z$ (sell the THB to Zimbabweans) as they would be able to sell them cheaper than the Z$/THB pair (arbitrage).

 

Stated more formally: If Z$/THB changes but USD/THB stays the same, there is money to be made from going USD/THB → THB/Z$ → Z$/USD.

 

This of course assumes that Z$ is a reliable currency, but it would have to be, if it became responsible for all of Thailand’s foreign inflow.

Ah yes, the carry trade. But in that extreme example Z$ would lose value because it was being sold.

 

I know from what you've written that you understand how this whole thing works but others won't...the following may help:

 

Out of the 180 currencies in the world, only about 40 or so float freely, the rest are anchored or linked in some way to something, most often to another currency, usually USD or EUR. Around 85 currencies are part of a managed floating peg system (aka a dirty float) which in Thailand’s case is linked to inflation rather than a currency.

 

Tourist money arrives in Thailand in potentially 180 different currencies but most of those currencies are linked to USD or EUR. In addition, over 60% of Thailands export trade bills are settled in USD. You can see from those things that the value of USD is vitally important to THB and that the managed float is geared towards the USD/THB relationship rather than any other. GBP is also a reserve currency but it is far less significant for trade purposes, ditto the EUR, CHF and RMB. Pretty much all other currencies can be disregarded when it comes to fixing the value of THB, not only does the market not care about them many of those currencies are likely to be USD targeted currencies anyway.   

 

So when BOT fixes the value of THB each day it does so based on USD along with all the other factors that influence the economy, most of which are well known and all of which are already agreed by the markets, there is therefore no dispute between the FOREX market and BOT regarding the true value of THB. One of those factors is the current account surplus which is a matter of record and impossible to hide.

 

The final part of this jigsaw is that THB is a very minor but controlled currency, it is not fully convertible and cannot be freely exported nor held in large amounts by banks and institutions overseas. As a result it is extremely difficult for overseas institutions to take a position against THB, the best they can do is create a secondary smaller offshore market. The effect of that is best explained by the following extract: “The debate of making a choice between fixed and floating exchange rate regimes is set forth by the Mundell–Fleming model, which argues that an economy (or the government) cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. It must choose any two for control and leave the other to market forces”. In Thailand's case the two things do not include free capital movement, if it did Thailand would look just like it did pre-1997.