Thai Central Bank is buying the Baht

[Adumbration]

I noticed on friday that the Aussie dollar plummeted against the baht to the tune of nearly 2%.

 

I scanned all available news sources to find out why but it was a still a mystery.

 

Tonight I bumped into this article by reuters.

 

The BOT is buying the baht:

 

https://www.reuters.com/markets/asia/thai-policy-tightening-be-gradual-recovery-slow-chief-2022-10-01/

 

Things are getting pretty unstable now globally.  Something has to break.

[Adumbration]

international reserves are well down:

 

https://www.bot.or.th/English/Statistics/EconomicAndFinancial/ExternalSector/Pages/StatInternationalReserves.aspx

 

1997 here we come.

[kuma]

1 hour ago, Adumbration said:

international reserves are well down:

 

https://www.bot.or.th/English/Statistics/EconomicAndFinancial/ExternalSector/Pages/StatInternationalReserves.aspx

 

1997 here we come.

Good link, thanks. All looks fairly orderly, sure using some up w interventions but not Japan by any measure - Thailand seems to be financially pretty solid overall, esp vis a vis its peers, imo

[nigelforbes]

5 hours ago, Adumbration said:

international reserves are well down:

 

https://www.bot.or.th/English/Statistics/EconomicAndFinancial/ExternalSector/Pages/StatInternationalReserves.aspx

 

1997 here we come.

Foreign Currency Reserves ebb and flow for various reasons, the major one is because they are used for trade, the purpose for which they are intended. The second major reason for their change in value is because whilst they are held in over 24 currencies they are valued and accounted for in USD, as the THB/USD exchange rate changes, so does the value of the reserves. In fact they have fallen by over USD19 bill. over the past year, just because of revaluation alone. Thirdly, they change because BOT does intervene in the FOREX to stabilize the Baht, that's their job and under IMF rules they are required to do so. The comparison between now and 1997 is inappropriate, there is nothing remotely similar about the two periods, foreign debt is under 40% of GDP, a very very low level.

 

https://thediplomat.com/2020/12/thailands-debt-dilemma/.

[PeachCH]

7 hours ago, Adumbration said:

international reserves are well down:

 

https://www.bot.or.th/English/Statistics/EconomicAndFinancial/ExternalSector/Pages/StatInternationalReserves.aspx

 

1997 here we come.

There will be not another 1997. The situation is quite different. 

I know, because in 1997 I lost several million Baht when the stock market overheated and finally crashed. The big finance company in which I was invested had to shut down, together with several other ones. Bad memories! ????

[CMBob]

8 hours ago, Adumbration said:

international reserves are well down:

 

https://www.bot.or.th/English/Statistics/EconomicAndFinancial/ExternalSector/Pages/StatInternationalReserves.aspx

 

1997 here we come.

Based on what I read, the highest level of Thailand's foreign reserves was 245 billion (US) during 2022 and the balance was still 215 billion (US) as of this September (2022).  The sky is not falling and I'd hardly call that decrease "well down."

[gearbox]

You would have been around long time to know that the Pacific peso, also known as Australian dollar, performs pretty poorly in time of some crisis.

 

Look at the charts during covid, it plunged to 18 baht for a dollar.

 

So not much to do with the Thai central bank.

 

My strategy is to have at least an year worth of expenses in Thai bahts in my Thai bank accounts, and top them up when the exchange rate looks reasonable, last transfer I did was at 25.5.

[The Theory]

The real rate $1 = ฿ could be above 40, but they manage it somehow to keep it lower. 

[The Theory]

9 hours ago, Adumbration said:

The BOT is buying the baht:

That's why ฿  fluctuates with no reason, sometimes more than ฿1. Buying and selling. 

[nigelforbes]

5 minutes ago, The Theory said:

That's why ฿  fluctuates with no reason, sometimes more than ฿1. Buying and selling. 

Hmmmm! It doesn't matter who buys the currency the effect will be the same, the more it is bought, the stronger it becomes. What's confusing however is that in your previous post you suggest "they" manage to keep it lower, which is at odds with it being bought which makes it stronger.

 

Just to be clear: when a central bank such as BOT buys Baht it uses USD to make the purchase, that makes THB stronger against USD. It also means that the THB they just bought, now becomes part of their foreign currency reserves, later, when the BOT wants to weaken the Baht they will take that same THB and sell it against USD. It therefore follows that the intervention by central banks such as BOT, in the OFREX market, doesn't generate a permanent loss.

[Nong Khai Man]

The BOT is buying the baht:.....And Have been for YEARS.....Keeping it well ABOVE It's Actual Worth....!!

[Eric Loh]

Commodity currencies are not performing well with the world staring at possible recession and China's economy slowdown. 

[nigelforbes]

51 minutes ago, Nong Khai Man said:

The BOT is buying the baht:.....And Have been for YEARS.....Keeping it well ABOVE It's Actual Worth....!!

Where does this endless supply of money come from, the money they use to buy the Baht?

[Peterw42]

1 hour ago, nigelforbes said:

Hmmmm! It doesn't matter who buys the currency the effect will be the same, the more it is bought, the stronger it becomes. What's confusing however is that in your previous post you suggest "they" manage to keep it lower, which is at odds with it being bought which makes it stronger.

 

Just to be clear: when a central bank such as BOT buys Baht it uses USD to make the purchase, that makes THB stronger against USD. It also means that the THB they just bought, now becomes part of their foreign currency reserves, later, when the BOT wants to weaken the Baht they will take that same THB and sell it against USD. It therefore follows that the intervention by central banks such as BOT, in the OFREX market, doesn't generate a permanent loss.

Maybe I am a bit slow. How can Thailand spend USD, its foreign reserve,  and somehow magically increase its foreign reserve.

If you buy baht, you dont have more foriegn currency/reserve, you have more baht.

As others have asked, where does the USD come from.

Its called Foreign exchange reserves because its assets held on reserve by a central bank in foreign currencies. Spend the foreign currency, and its gone

[nigelforbes]

14 minutes ago, Peterw42 said:

Maybe I am a bit slow. How can Thailand spend USD, its foreign reserve,  and somehow magically increase its foreign reserve.

If you buy baht, you dont have more foriegn currency/reserve, you have more baht.

As others have asked, where does the USD come from.

Its called Foreign exchange reserves because its assets held on reserve by a central bank in foreign currencies. Spend the foreign currency, and its gone

The Foreign Reserves are held in 24 currencies which represent the currencies of major trading partners. Included in those reserves is Gold, SDR (Special Drawing Rights) and crucially, THB. Once any currency becomes a part of the Reserves it remains there, despite it being traded for a different currency, for whatever reason. In theory though highly unlikely in practice, the Foreign Currency Reserves could be all held in THB.

 

The USD comes from export bill settlements, 60% of which are settled in USD, that's the currency of import/export. That practice is being supplemented increasingly with currency swaps, especially between China and Thailand, this eliminates USD from the process. Sooo, Thai exporter sells product overseas and invoices the customer in USD (at least more likely, the EXIM Bank does so on his behalf). Customer pays EXIM Bank in USD, which is then passed onto the exporter who used to have 365 days to sell the USD to BOT. That period ha snow been extended by BOT and exporters are allowed to invest the USD offshore. But in practice, Thai exporters live in Thailand and they spend THB, they therefore sell their USD to BOT and get THB in return.

 

Lastly, back to THB and the Reserves: BOT holding THB means they can intervene in the FOREX markets and sell THB when the Baht is too strong, it's not just a one way street. You asked how the BOT can sspend USD and increase its reserves. That's because there is a constant inflow and outflow taking place. Inflows from inward foreign direct investment, inward from export bill settlement etc etc and outward from government debt payment settlement and outwards from BOT activities....bond sales and purchases are yet another dimension on all of this.

[KhunLA]

SS DD already in at 1000 hrs @ 37.63 ????

 

THANK YOU

[foreverlomsak]

11 hours ago, Adumbration said:

I noticed on friday that the Aussie dollar plummeted against the baht to the tune of nearly 2%.

Most currencies, apart from the USD, have seen big swings in the last couple of weeks, GBP lost 8% but gained most of it back by the weekend.

The problem as I see it (and I'm probably wrong) is that the Thais really only gauge the strength of the THB against the USD and the USD is very strong just now.

[Peterw42]

Fridays 2% loss is all but come back, as of 11:30.

 

[KhunLA]

For every $1000 (USD), that's ฿8140 more today/per month, than the low of Feb 2021.

 

That amount will make or break some folks from qualifying for a visa, using direct deposit, and why so many left TH, when embassies stopped issuing unverified income statement.

 

 

[Pedrogaz]

It is idiocy for the Central Bank to but Baht when it is up against the USD. Better wait until this round of dollar rise is over.

[nigelforbes]

1 minute ago, Pedrogaz said:

It is idiocy for the Central Bank to but Baht when it is up against the USD. Better wait until this round of dollar rise is over.

The role of BOT during these times is to smooth the rise or fall of the Baht, much in the same way as the oil fund smooths the price increases of motors fuel.  BOT is not trying to permanently move the value of the currency. That said, THB is a small currency and it doesn't take much to move its value one way or the other.

[flexomike]

26 minutes ago, KhunLA said:

SS DD already in at 1000 hrs @ 37.63 ????

 

THANK YOU

glad mine hasn't been deposited yet, as of 11:44 it is at 38.13, do you use IDD or are you getting it through Bangkok Bank NY, mine comes from NY to Bangkok Bank

[BonMot]

Stating the obvious.

 

Common wisdom you can defend a currency that is massive and widely traded - yen is perfect example.

 

They'll get away with it for awhile but selling dollars, buying baht... it's futile. Also, central bank loses part if what propped up the currency (dollars). So, a fools errand. Need to raise rates.

[nigelforbes]

3 minutes ago, BonMot said:

Stating the obvious.

 

Common wisdom you can defend a currency that is massive and widely traded - yen is perfect example.

 

They'll get away with it for awhile but selling dollars, buying baht... it's futile. Also, central bank loses part if what propped up the currency (dollars). So, a fools errand. Need to raise rates.

Consumer loans are over 90% of GDP, NPL's are 3% but significant risk loans are 6%, they are only that low because GDP has fallen. A rate increase would supercharge those numbers.

[gearbox]

31 minutes ago, Peterw42 said:

Fridays 2% loss is all but come back, as of 11:30.

 

AUD will probably get some support tomorrow when the Reserve Bank is expected to raise the interest rate again.

[BonMot]

3 minutes ago, nigelforbes said:

Consumer loans are over 90% of GDP, NPL's are 3% but significant risk loans are 6%, they are only that low because GDP has fallen. A rate increase would supercharge those numbers.

I don't disagree which is why they are stuck where they are. In fact, this is true everywhere including US and why many think Fed will break, pivot. Best minds are 50/50.

 

Yet, other issues will develop as the spread between the two currencies widens. It's quite a mess.

 

Some Thai in press was quoted giving the following formula of USD THB weaking . 38 satang to . 25 rate increase.

 

Some predict 4.6% before the Fed breaks. That could put the THB at 41 but I'm thinking 42-43 until Fed folds and bot substantially raises.

[KhunLA]

22 minutes ago, flexomike said:

glad mine hasn't been deposited yet, as of 11:44 it is at 38.13, do you use IDD or are you getting it through Bangkok Bank NY, mine comes from NY to Bangkok Bank

IDD

[spidermike007]

Though I certainly do not look forward to it, I see a huge global economic correction coming. Call it what you will. It will likely bring a substantial drop in the stock markets, real estate valuations (Thai rural land values may be an exception, maybe), and other asset classes. I see the DOW dropping to around 5,500. Real estate in the US dropping to 40% of current values. Condos here will likely drop by 50%. We shall see. A major correction is needed. The economy remains too overheated, though some economies like Thailand took a major hit from covid, and gross mismanagement. 

[NickyLouie]

1 hour ago, spidermike007 said:

 I see the DOW dropping to around 5,500. 

What's your Bitcoin prediction?

[spidermike007]

38 minutes ago, NickyLouie said:

What's your Bitcoin prediction?

Very hard to say. If the DOW drops through the floor, and the major world economies collapse, there is a chance of bitcoin going to $500,000 and ETH going to $50,000. And gold going to $50,000 and silver rising to $2,500 an ounce. But, that is anyone's guess. It would likely only happen under conditions that would make 1929 look like a picnic. A major correction is coming. It is only a question of when, and how severe it is.