BOT insists its Bt6 trillion liability will not turn into public debt, but history says otherwise

[rooster59]

BOT insists its Bt6 trillion liability will not turn into public debt, but history says otherwise

By The Nation

 

Chantawan Sutcharitkul, BOT’s assistant governor.

 

The Bank of Thailand (BOT)’s obligation worth Bt6 trillion will not translate into public debt as feared by many, the central bank insists, though the explanation it has offered is far from clear.

 

 

Chantawan Sutcharitkul, BOT’s assistant governor, said on Friday (June 12) that many people misunderstood the central bank’s balance sheet, which shows it has liabilities worth Bt6 trillion. 

 

The central bank’s debts come from its normal market operations – when there is liquidity flooding into the market, the central bank issues bonds to manage the financial market and when the market faces tight liquidity, the central bank reduces the issuing of bonds in order to inject liquidity back into the market, she said. 

 

“The central bank also buys foreign currency when there is a large capital inflow into the Kingdom, so while the bank has obligations, it also has large assets in the form of foreign currencies,” she added. 

 

“Debts that appear in the central bank’s financial statement cannot be counted as public debts. It is standard practice by central banks across the world,” she said reassuringly. 

 

However, she did not explain how things are different this time compared to the past, when the central bank wrongly defended the baht, resulting in a financial crisis and a currency debacle in 1997-1998. 

 

At that time, the central bank depleted international reserves as part of a currency war, when speculators began selling out the baht heavily, forcing the central bank to abandon its fixed exchange rate and the country to borrow emergency funds from the International Monetary Fund. The consequence of the huge damages stemming from the central bank’s foreign exchange fiasco and subsequent efforts to rescue financial institutions later turned into public debts. 

 

Source: https://www.nationthailand.com/business/30389543

 

-- © Copyright The Nation Thailand 2020-06-13

 

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[ozz1]

Yea yea haha i believe you not lts break out the popcorn

[Trillian]

An article that is missing some key facts!

 

The Central Bank in 1997 had most of its foreign currency reserves tied up in long dated securities so was unable to defend the Baht, even if it wanted to or thought it was a good idea (which it wasn't). That's the difference between 1997 and today, today the Foreign Currency Reserves are more liquid....she should know that!

 

The article is mischief making, bond repurchases and market operations are a normal part of the banks job, there's no story here.

 

 

[smedly]

2 hours ago, Trillian said:

An article that is missing some key facts!

 

The Central Bank in 1997 had most of its foreign currency reserves tied up in long dated securities so was unable to defend the Baht, even if it wanted to or thought it was a good idea (which it wasn't). That's the difference between 1997 and today, today the Foreign Currency Reserves are more liquid....she should know that!

 

The article is mischief making, bond repurchases and market operations are a normal part of the banks job, there's no story here.

 

 

you sound like a typical financial commentator trying to put lipstick on a pig to deflect and protect

 

There are similar patterns emerging to 1997, it is now not so much about what Thailand does but what others do to limit their own risks, Thailand has used normal instruments recently to try and bring the baht under control - the fact they have been generally ineffective is the real problem - they are doing what Thailand does best - reacting to something after it happens instead of prudent prevent measures before it happens 

[spidermike007]

If there is anything that can be taken from virtually any government agency, it is that what they say is NOT true and CANNOT be trusted. That applies the world over and doubly so here. 
 

Fake news!

[Trillian]

1 hour ago, smedly said:

you sound like a typical financial commentator trying to put lipstick on a pig to deflect and protect

 

There are similar patterns emerging to 1997, it is now not so much about what Thailand does but what others do to limit their own risks, Thailand has used normal instruments recently to try and bring the baht under control - the fact they have been generally ineffective is the real problem - they are doing what Thailand does best - reacting to something after it happens instead of prudent prevent measures before it happens 

And you come across in many of your posts as very jaundiced and jaded in your comments about Thailand, I think if felt the way you seem to feel I'd be living in a different country.

 

But 1997 vs today: I don't know what similar patterns you think you see but the two  scenarios are almost exact opposites! In 1997 there was huge overseas lending in USD, foreign reserves were minimal and not easily accessible, tourism and exports were still embryonic, the Central Bank was in its infancy and the currency was hard pegged. The problems in 1997 were structural, those same problems don't exist today and the factors connected with the '97 crash have been addressed, probably too well for Thailand's own good!

 

 

[smedly]

18 minutes ago, Trillian said:

And you come across in many of your posts as very jaundiced and jaded in your comments about Thailand, I think if felt the way you seem to feel I'd be living in a different country.

thanks for the advice, however I'll make my own assessment and my owns choices

[khunken]

The central bank’s debts come from its normal market operations – when there is liquidity flooding into the market, the central bank issues bonds to manage the financial market and when the market faces tight liquidity, the central bank reduces the issuing of bonds in order to inject liquidity back into the market, she said. 

 

This doesn't make sense. Take the FED for example, which doesn't issue bonds (the US Treasury Dept does), but buys and sells bonds & is currently on a huge buying spree - even buying ETFs containing corporate bonds.

 

The Op says that the BOT issues bonds to soak up liquidity - no doubt boosting the THB exchange rate versus the USD. If they really were taking action (instead of always moaning about it) to reduce the high Baht rate, surely they would be doing the opposite to what the good lady from the BOT says.

 

I'm no expert and have no problem with being proved wrong.

[Trillian]

35 minutes ago, khunken said:

The central bank’s debts come from its normal market operations – when there is liquidity flooding into the market, the central bank issues bonds to manage the financial market and when the market faces tight liquidity, the central bank reduces the issuing of bonds in order to inject liquidity back into the market, she said. 

 

This doesn't make sense. Take the FED for example, which doesn't issue bonds (the US Treasury Dept does), but buys and sells bonds & is currently on a huge buying spree - even buying ETFs containing corporate bonds.

 

The Op says that the BOT issues bonds to soak up liquidity - no doubt boosting the THB exchange rate versus the USD. If they really were taking action (instead of always moaning about it) to reduce the high Baht rate, surely they would be doing the opposite to what the good lady from the BOT says.

 

I'm no expert and have no problem with being proved wrong.

I believe the article is confused! When the bond market recently experienced a a lack of liquidity, BOT market operations intervened and acted as buyer of last resort thus injecting capital into the market and improving market liquidity. I think the result is that BOT now has those bonds on its balance sheet which until they are sold again remain a liability.

[khunken]

33 minutes ago, Trillian said:

I believe the article is confused! When the bond market recently experienced a a lack of liquidity, BOT market operations intervened and acted as buyer of last resort thus injecting capital into the market and improving market liquidity. I think the result is that BOT now has those bonds on its balance sheet which until they are sold again remain a liability.

Doing some research into this so I can understand it - The BOT does issue bonds and seems to have the mandate to issue government bonds. When the BOT auctions a bond and an investor buys it, the BOT does indeed become the debtor and so the bond amount is a liability. In that scenario, the Op makes sense.

Unlike the FED, the BOT is not printing money by buying bonds but issuing and redeeming bonds. A while ago the BOT said they were reducing the issuing of some bonds, hoping that a lesser flow of foreign currency into Thailand might stem the Baht's rise. It didn't really work so maybe the bond issue reduction wasn't enough.

 

https://www.bot.or.th/English/PressandSpeeches/Press/2020/Pages/n2463.aspx

[Trillian]

As I recall there are three bond issuers in Thailand, BOT, The Finance Ministry and the government, the PDMO reports give some clues but their material is not the easiest to read:

 

https://www.pdmo.go.th/en/bond-market/thai-bond-market-report

 

[Trillian]

To add: I think the reduction in bond issuances was geared towards slowing the FDI inflows, it was seen as a way to cool Baht strength.

[khunken]

20 minutes ago, Trillian said:

To add: I think the reduction in bond issuances was geared towards slowing the FDI inflows, it was seen as a way to cool Baht strength.

Yes, but as I said. it didn't work very well. One other set of figures that impacts the Baht is the current account which, although both exports & imports have dropped, is still positive.

 

BTW thanks for the info about the PDMO. My understanding is that the Finance Ministry only issues savings-type bonds for small depositors.

[phkauf]

2 hours ago, Trillian said:

I think the result is that BOT now has those bonds on its balance sheet which until they are sold again remain a liability.

Actually I believe those bonds are Assets on BOT's balance sheet, since they purchased them from the market to inject liquidity. A big question would be the value at which they are carried and whether or not they are being held to maturity or could be sold back to the market.

[Trillian]

40 minutes ago, phkauf said:

Actually I believe those bonds are Assets on BOT's balance sheet, since they purchased them from the market to inject liquidity. A big question would be the value at which they are carried and whether or not they are being held to maturity or could be sold back to the market.

Yes I think you are right as far as Government Bonds are concerned, I had to read again the BOT press release on the subject which is linked below. If I understand this correctly the BOT liability arises not from holding bonds but as a result of the credit extended to commercial banks to buy those bonds (see Bond Mutual Funds on the link below).

 

https://www.bot.or.th/English/AboutBOT/Activities/Pages/Joint_22032020.aspx

[Trillian]

I had to put this down and come back to it, I still don't have a totally clear picture of these liabilities and how they arose etc., I'll need to do some digging and will come back again when I've understood things better.

[Trillian]

I found the BOT balance sheet here:   https://www.bot.or.th/App/BTWS_STAT/statistics/ReportPage.aspx?reportID=11&language=eng

 

It looks as though there are assets and liabilities of THB 8.6 trill.

 

Assets include two key components, currency and deposits of 1.9 trill. and securities of 6.3 trill.

 

Liabilities include two key components, banknotes in circulation, 1.9 trill. and securities and loans of 6.3 trill.

 

If I understand that correctly BOT holds securities worth 6.3 trill on one side of the balance sheet, presumably as a result of market operations. But it also holds also corresponding liabilities in the form of loans or extended credit used to buy them. If that's correct the bonds can be sold at a future date and they will not become debt, as the article states.

 

Anyone?

 

[hotchilli]

On 6/13/2020 at 6:44 AM, ozz1 said:

Yea yea haha i believe you not lts break out the popcorn

Forget the popcorn the movies rubbish...