Currency Manipulation

[saengd]

2 minutes ago, Suradit69 said:

Agree. We've seen many posts about the fabled superior farang logic in other threads, but much of what's written in this thread demonstrates a total lack of logic.

 

It's difficult to try to even argue against the comments made in this thread since they are all over the place. There would be no strategic reason for Thailand to manipulate the baht higher/stronger.   And to say this thread is about currency manipulation so we shouldn't bring trade or trade balances into the conversation boggles the mind.

 

As Lincoln once said: It's better to remain silent and be thought a fool than to speak out and remove all doubt. ( or some along those lines).

In Post 13 that poster said it was about unfair trade agreements , not trade balances but didn't have a clue what trade agreements or why they are unfair, that is what was not relevant oh wise one!

[Sticky Wicket]

1 hour ago, Lacessit said:

It suits the military's book to have a strong baht so they can buy the tanks, submarines and helicopters they so desperately need. However, I doubt the baht is being manipulated, because currency speculators would be all over it like a rash.

Having said that, the real manipulation comes in the form of tariffs and customs duties. IMO Thailand is the most protectionist country on the planet.

The baht floats but it is managed, which means there can be intervention.

It is not fully convertible and therefore you can't take a short position against it

 

[saengd]

1 minute ago, Sticky Wicket said:

The baht floats but it is managed, which means there can be intervention.

It is not fully convertible and therefore you can't take a short position against it

 

Significantly it is a managed floating peg to USD, not just a managed float against nothing in particular...that is why USD/THB is the currency pair that matters and why sales/purchases of USD/THB are of importanceand other trades are not.

[AJBangkok]

The Baht is actually managed against a basket of currencies with the USD being the largest component.

 

The strength of the Baht is pretty much due to supply and demand. Thailand exports more than it imports so the the foreign demand for baht to pay for the Thai products exceeds the Thai demand for $ to pay for what the Thais import. 
 

You may say why don’t foreigners pay in $ - well sometimes they do but the Thais want Baht not $ so they convert them to Baht and the dollars end up at the central bank in reserves. 
 

As long as Thailand exports more than they import the Baht is not going down. (Unless the government or Thai companies borrow huge amounts of $ and miss-allocate the capital into non producing assets and cannot repay it. Then the Baht will implode.)

[saengd]

1 minute ago, AJBangkok said:

The Baht is actually managed against a basket of currencies with the USD being the largest component.

 

The strength of the Baht is pretty much due to supply and demand. Thailand exports more than it imports so the the foreign demand for baht to pay for the Thai products exceeds the Thai demand for $ to pay for what the Thais import. 
 

You may say why don’t foreigners pay in $ - well sometimes they do but the Thais want Baht not $ so they convert them to Baht and the dollars end up at the central bank in reserves. 
 

As long as Thailand exports more than they import the Baht is not going down. (Unless the government or Thai companies borrow huge amounts of $ and miss-allocate the capital into non producing assets and cannot repay it. Then the Baht will implode.)

That's only partially correct. THB is indeed managed against a basket of 24 currencies representing the largest trading partners, But over 60% of all export bills are settled in USD and herein lies the problem. Whilst that 60% has reduced over time as currency swap agreements with China have come into play, that still leaves Thai exporters holding large volumes of USD, which until fairly recently they were obliged to repatriate within twelve months. Now as BOT currency regs have been relaxed further, exporters now have other avenues for the Dollars they have earned. But historically Thai exporters want to hold Baht not USD  so the relaxation of the currency rules doesn't have much affect.

 

Your last point about Thai companies or government borrowing USD escapes  me, BOT has foreign currency reserves of over USD 210 Billion so there's is never going to be a scenario where they have to borrow USD.

[CNXexpat]

8 hours ago, Yinn said:

Hello saengd 

 

maybe I think wrong, you can explain.

 

people like to buy product we make. Popular. And we not need to buy product from other country. Not our problem.

 

Similar, Trump say China must buy more product from USA. But USA product is expensive and low quality, eg Chevrolet, McDonald’s. Should be up to the consumer= free market. 

 

Generally speaking IMO

USA product low quality and expensive. eg Chevrolet 

china product low quality and cheap

europe product high quality and expensive. Eg Benz, BMW 

japan product good quality and not expensive. Toyota, Honda

No, it´s different. Thailand is a developing country but the EU and the US rate the country as a 3rd world country in customs affairs, what means that Thailand has huge advantages in import taxes to the US and EU. On the other side Thailand demands crazy high import taxes. So the people in Thailand have to buy Thailand made things if they are not rich. Import taxes on cars are 80% if the cars come in parts and are assembled in Thailand (what Mercedes and BMW do) and what makes their cars much more expensive than in Germany. If the cars are imported complete the import tax is minimum 200%. What do you think will happen with Thailand´s car industry if all other countries to which Thailand imports it´s cars - Australia by example - would also demand this high customs? 

 

Thailand exports Thai spirits to the US and pays only a small import tax. But if the US exports wine to Thailand they pay a massive import tax. 

 

India did the same what Thailand does. The US government negotiated with the Indian government, but without success. Then the US said "ok, India will get not anymore the customs advantage" - and the Indian exports to the US dropped  very quick. 

 

Japanese cars are cheap in Thailand when they are build here. But imported cars from Japan like the MX5 are crazy expensive because the high import tax. 

Edited January 14, 2020 by CNXexpat

[Suradit69]

2 hours ago, saengd said:

In a nutshell, the entire global FOREX market as well as the BOT have to agree that the exchanges rate is correct

You really need to read a few books by Micheal Lewis. 

 

The main thing you find in nutshells are nuts.

 

 

 

 

Edited January 14, 2020 by Suradit69

[saengd]

1 minute ago, Suradit69 said:

You really need to read a few books by Micheal Lewis. 

 

The main thing you find in nutshells are nuts.

 

 

 

 

Cryptic but not especially helpful, if you have a view on something, spit it out.

[Laza 45]

1 hour ago, kevin612 said:

I agree, baht is overvalued and They want more people to come and spend like crazy. Many tourists come here because cheap, tourists will choose somewhere when Thailand is no longer affordable.

...where will they go where they can get a good hotel room for 1,000 Bt .. a good meal for a couple of hundred and cheap domestic travel?

[Stevemercer]

All countries 'manipulate' their currencies to meet economic objectives. The US defines 'currency manipulation' in a sense that other trading countries are acting against US interests. So it is self-serving definition (for the US).

 

Other countries may have their own definitions of 'currency manipulation'. I would have thought that all countries, including Thailand, manage their currencies to benefit their own economies.

 

Whether or not they might be listed by the US as currency manipulators should not be relevant in managing Thailand's economy (although it might be a consequence and can then be dealt with as a bilateral trade issue).

Edited January 14, 2020 by Stevemercer

[tomauasia]

12 hours ago, tonray said:

It's an absurd notion that a country whose currency is at a 6 year high against the global reserve currency, the US Dollar, can be considered a currency manipulator. It just so happens that Thailand has always been more of an export economy than one designed to thrive on services. They export large amounts of agricultural products and also have the #1 auto manufacturing hub in Souteast Asia, exporting to many other nations. This is one of those anomalies like Body Mass Index where a very fit bodybuilder is considered obese by looking at the chart.....to be ignored. 

Nope they were floating there currency

[emptypockets]

11 hours ago, Peterw42 said:

Most Australians that buy a new car, 4 out of 5 of the top selling cars in Australia come from Thailand.

And cheaper in Oz than Thailand with current exchange rate for a similar car with more features. Crazy.

[mshs]

5 hours ago, emptypockets said:

And cheaper in Oz than Thailand with current exchange rate for a similar car with more features. Crazy.

Exports subsidies, mate.  Oz could slap some countervailing duties, but then that would mean citizens would pay more or get priced out of a car.

 

Same with nearly all that's sold in Walmart - cheaper than where it's made.

[shy coconut]

19 hours ago, RichardColeman said:

More interested in what nutcases are buying thai products when the baht is daftly high

People who need these products I guess.

 

 

[saengd]

A useful article that explains further how the FOREX market works and how exchange rates are set:

 

https://financeandcareer.com/how-does-the-forex-market-work/

 

The article doesn't mention how the FOREX market works between close of business Friday and when it opens again on Monday morning. During that period global control is passed to Thompson Reuters who store and track all transactions and derive updated approximate values for currency pairs based on very low turnover. This is a time when dealers/banks and brokers typically do not operate (although they are allowed to do so and on rare occasions they will, typically when a government or central bank makes a large play).

 

Another fairly complex piece of the jigsaw is that the FOREX market records the values of currencies mostly against USD, subsets of this, are calculated and presumed. For example, a significant transaction involving USD/THB will change the value of one of that pair which results in the strengthening or weakening of THB. The corresponding downstream impact on other currency pairs comprising THB, for example GBP/THB, will be calculated and adjusted using algorithms.

 

Similarly, when a major transaction involving GBP/USD takes place, one of the pair adjusts and the impact of that adjustment is calculated and passed on to all currency pairs associated with either of the pair (because both are reserve currencies against which other currencies are measured). What I've just described ensures that balance and relative adjustment values are maintained across all currency pairs, and that no single currency has an advantage resulting from a change in value somewhere in the system.

[KKr]

On 1/14/2020 at 8:38 AM, deej said:

How can that be classed as Sad

Smell the coffee????

The Thai Baht is over valued by minuim of 20% in  some cases 30% (currencys) and that is Fact????

 

for my and other people's education, could you share the data underpinning those facts with us ?
 

[traveller101]

One significant aspect influencing the exchange rate almost never finds a mention - speculation.

Considering the fact that total currency volume trade exceeds 5 Trillion Dollars per day, it goes without saying that the vast majority of those trades are not based on genuine international trade in goods and services.

It is estimated that at least 80% can be attributed to speculation.

The Baht specific trade volume is averaging 1.6 Billion $ per day or $584B per year, an amount which exceeds the entire GDP of Thailand.

Thailand's low inflation, favorable terms of trade, low public debt and "relative" political stability are partly responsible for the relentless rise of the baht.

The Governor of the Bank of Thailand has undoubtedly a difficult task to reign in the Baht particularly to discourage the speculators on the demand side which are largely responsible for driving the value over and above what could be attributed to favorable fundamentals. They base their decisions on future developments and like every other investor hate uncertainties.

The Governor's tools at his disposal are admittedly limited and discussed at nauseum in the media.

But IMHO he is at the very least naive and incompetent in one area - dealing with the public in press comferences and releasing statements. With statements like - quote "We cannot reduce the key interest rates any further because they are already at a historic low" and continuous talk for months on end of fearing to be placed on list of currency manipulators  as well as "that he is ready to implement further measures" without acting in any meaningful way (cry wolf syndrom?) he plays straight into the hands of speculators who are gleaming at the prospect of nothing happening and gives them additional certainty in their decision making process.

A poker player who signals to his opponents what card he holds, will never be successful at the game.

This Governor reminds me of such a player.

[saengd]

1 hour ago, traveller101 said:

One significant aspect influencing the exchange rate almost never finds a mention - speculation.

Considering the fact that total currency volume trade exceeds 5 Trillion Dollars per day, it goes without saying that the vast majority of those trades are not based on genuine international trade in goods and services.

It is estimated that at least 80% can be attributed to speculation.

The Baht specific trade volume is averaging 1.6 Billion $ per day or $584B per year, an amount which exceeds the entire GDP of Thailand.

Thailand's low inflation, favorable terms of trade, low public debt and "relative" political stability are partly responsible for the relentless rise of the baht.

The Governor of the Bank of Thailand has undoubtedly a difficult task to reign in the Baht particularly to discourage the speculators on the demand side which are largely responsible for driving the value over and above what could be attributed to favorable fundamentals. They base their decisions on future developments and like every other investor hate uncertainties.

The Governor's tools at his disposal are admittedly limited and discussed at nauseum in the media.

But IMHO he is at the very least naive and incompetent in one area - dealing with the public in press comferences and releasing statements. With statements like - quote "We cannot reduce the key interest rates any further because they are already at a historic low" and continuous talk for months on end of fearing to be placed on list of currency manipulators  as well as "that he is ready to implement further measures" without acting in any meaningful way (cry wolf syndrom?) he plays straight into the hands of speculators who are gleaming at the prospect of nothing happening and gives them additional certainty in their decision making process.

A poker player who signals to his opponents what card he holds, will never be successful at the game.

This Governor reminds me of such a player.

Baht speculation is not an issue because it is a restricted currency, it is not fully convertible and may not be exported, overseas banks can only hold limited amounts. Because of those things speculators cannot take a position against THB, people can deal on an account basis but not for delivery of the currency.