The Baht Thread

[allanos]

Broadly speaking, world currencies trade inversely

to dollar strength.

 

A quick glance at the DXY, a basket of currencies

versus the USD, shows that, since 26 September

last year, the mighty dollar is down by around

11% or so, and poised to go lower according to a

bit of TA.

 

It would seem to suggest that the THB will rise

against the USD, certainly, but not against others,

perhaps, in the near term.

[nigelforbes]

17 minutes ago, Stevemercer said:

Thanks for the comprehensive explanation.

 

What perplexes me about the Thai Baht is that the government seems to have no clear policy about whether they want a stronger/weaker Baht. The PM and senior Ministers often jawbone it up, while the central bank fiddles around to weaken it incrementally. Maybe the PM is haunted by the 1997 Baht crash and also has the nationalistic/third world view that a strong currency is good for the nation and reflects his own good governance.

 

Compare this to a typical Western country which will have a clear policy/government line (even if counter to the central bank). I come from Australia which, as an exporting nation, always maintains the mantra for a weaker Australia dollar so as to boost exports and (hopefully) dampen imports. I suspect a lower dollar is also a means of boosting government revenues whilst also promoting more spending within Australia, rather than overseas, by its citizens.

 

I would have thought that Thailand, as an exporting nation, would also talk the Baht down, but it rarely does. It surprises me that this lack of certainty doesn't harm the Baht. Maybe the Baht stays strong in the long run precisely because investors (and finance beauracrats) are certain that the government, in its heart, wants a strong Baht.

Excellent points Steve. 

 

Regarding policy: I think that there's a sweet spot for USD/THB that's around 32 or 33. At that level, exporters can sell and are happy with their profit plus import don't cost a fortune and the oil price is manageable. It's when we see the rate stray to below 30 or above 35 that we begin to see press reports about exporters being unhappy or unable to sell their products and curtain twitchers begin to spot BOT intervening in the markets. The problem is how to make THB stay there (it's there right now) without changing policy on imports or risk making the Baht freely convertible and lose control.

 

Re. 1997: There is little question that 1997 haunts everyone at the bank and in government, still. Everything they do regarding finance has an eye on not even coming close to repeating what happened and nobody wants to be associated with that happening again.  Conservative doesn't begin to describe it, great nervousness prevails.

 

Re. Sounds Bites: I also agree these are far and few between, I imagine because they don't want to say one thing and have the opposite happen. There's an element of face in all of this, I think.

 

 

 

 

[nigelforbes]

15 minutes ago, allanos said:

Broadly speaking, world currencies trade inversely

to dollar strength.

 

A quick glance at the DXY, a basket of currencies

versus the USD, shows that, since 26 September

last year, the mighty dollar is down by around

11% or so, and poised to go lower according to a

bit of TA.

 

It would seem to suggest that the THB will rise

against the USD, certainly, but not against others,

perhaps, in the near term.

I think we have to largely ignore the period from September through January as far as the USD DI is concerned because it was essentially an anomaly. The longer term trend of 20+ years has consistently seen the DI under 100. Evene before that, with the exception of a three year period at the turn of the century, the DI seems to belong under 100. I'm pretty sure THB will rise but I'm less sure that USD will fall or stay flat.

[allanos]

36 minutes ago, nigelforbes said:

I think we have to largely ignore the period from September through January as far as the USD DI is concerned because it was essentially an anomaly. The longer term trend of 20+ years has consistently seen the DI under 100. Evene before that, with the exception of a three year period at the turn of the century, the DI seems to belong under 100. I'm pretty sure THB will rise but I'm less sure that USD will fall or stay flat.

You make a good point, but you are also presuming that global dynamics going forward will remain as they have previously. It's a tenuous argument, given the Russian invasion of Ukraine and subsequent fall-out, uncertainty with China's internal policies and policy in respect of Taiwan, what the Fed's future monetary-policy stance will be, and a host of other variables which may present from left field. That is to say, history may not repeat itself.

[morrobay]

Seems you have "overlooked" this BOT manipulation on the baht when it was at 37/$.  As you say a very controlled boutique currency . And for this reason not difficult to prop up as "needed"

https://www.thaienquirer.com/44229/thai-baht-heads-to-near-37-baht-us-as-bot-defends-its-use-of-19-billion-in-defending-the-currency/

[Skeptic7]

11 hours ago, nigelforbes said:

It has been nicknamed “Teflon Thailand” - an economy seemingly impervious to any lasting effects from regular spasms of violent political unrest.

 

https://www.cnbc.com/2014/01/09/as-bangkok-shutdown-looms-thailands-teflon-economy-put-to-the-test.html#:~:text=It has been nicknamed “Teflon,spasms of violent political unrest.

 

Yes, even in 2014 when there was a lot of political problems, mostly manifesting themselves in Bangkok, exporters in the rest of the country continued to export and tourists in the South and the North, continued to be tourists. None of which impacted the economy negatively because political unrest here is not a factor that impacts THB value on a lasting basis.

Teflon Thailand is the perfect moniker and spot on. I coined the term "Bulletproof Baht" many years ago, referring to the same thing. Henceforth it's "Teflon Thailand and it's Bulletproof Baht" for me❗????

Edited January 19, 2023 by Skeptic7

[Skeptic7]

12 hours ago, Gsxrnz said:

What does "Teflon Thailand" mean? 

Seriously⁉️ Where u been❓

Edited January 19, 2023 by Skeptic7

[nigelforbes]

1 hour ago, morrobay said:

Seems you have "overlooked" this BOT manipulation on the baht when it was at 37/$.  As you say a very controlled boutique currency . And for this reason not difficult to prop up as "needed"

https://www.thaienquirer.com/44229/thai-baht-heads-to-near-37-baht-us-as-bot-defends-its-use-of-19-billion-in-defending-the-currency/

No, I am aware of that issue. But I thought by now that most people would have understood that there is a large element of political mischief in that article! Let me try and explain. The basic premise of the manipulation argument here is that because the assets were worth X a year ago, they should once again be worth X when the exchange rate returns to normal, a year later. It doesn't work that way and the author of that article knows that!

 

The Foreign Currency Reserves (FCR's) comprise 24 currencies of the largest trading partners, plus gold, plus SDR's (Special Drawing Rights) and crucially, plus THB. The FCR's are accounted for in USD, using the exchange rate at the time they are reported.  In December 2021, the FCR's stood at USD 279 bill. and the USD/THB ex rate was 33.38. In October 2022, the FCR's stood at USD 228.7 but the ex. rate was 38. Some people screamed, where's the USD 50 bill gone! In December 2022, the FCR stood at USD 245.8 bill.and the exchange rate was 34.54. If you subtract the December 2021 FCR's from those a year later, the difference is about USD 33 bill. but the exchange rate in December 2022 is higher (33.38 vs 34.54). 

 

Several factors account for the difference:

 

1) the exchange rate is not the same.

2) all the assets in the FCR's moved at a different speed, some returned to normal, others are still at a significant loss.

3) Smoothing and volatility operations for the last six months of 2021, certainly cost money but that volatility control is a part of their remit under IMF rules.

4) Export bills continued to be paid throughout that six month period although the currency was not replaced with similar levels of foreign currency income.

 

The link to the BOT FCR's report, for 2022, by month, is shown below:

 

https://www.bot.or.th/App/BTWS_STAT/statistics/ReportPage.aspx?reportID=80&language=eng

 

 

 

 

Edited January 19, 2023 by nigelforbes

[nigelforbes]

9 minutes ago, Skeptic7 said:

Teflon Thailand is the perfect moniker and spot on. I coined the term "Bulletproof Baht" many years ago, referring to the same thing. Henceforth it's "Teflon Thailand and it's Bulletproof Baht" for me❗????

I personally don't see the term as either positive or negative, it's what it is, the Baht doesn't respond to political upset and after 18 coups in 100 years, who can be suprised!

[nigelforbes]

I made an error in my earlier post, point 4 should read imports, not exports....sorry!

 

The FCR's increase when there is a trade surplus (exports greater than imports) but when they don't, such as during covid, imports are greater and that results in a trade deficit. Imports are paid for using the same funds repository that export currencies are paid into, foreign currency is deposited into the account and is also paid out from it to pay for imports. As can be seen from the following link, Thailand operated a trade deficit for much of 2021, this means that FCR's were consumed rather than and not replenished and this further accounts for the repricing differences.

 

https://tradingeconomics.com/thailand/balance-of-trade#:~:text=in 3 Months-,Thailand posted a trade deficit of USD 1.34 billion in,a USD 0.2 billion gap.

[nigelforbes]

1 minute ago, morrobay said:

Ok we got it now: Of course it's not manipulation to prop up the baht- its "reevaluation of assets" 

Sarcasm noted! Fortunately, it's not my role to try to make you believe these things, just to describe them to you. What you chose to do with them is entirely up to you.

[billyo]

12 hours ago, nigelforbes said:

It has been nicknamed “Teflon Thailand” - an economy seemingly impervious to any lasting effects from regular spasms of violent political unrest.

 

https://www.cnbc.com/2014/01/09/as-bangkok-shutdown-looms-thailands-teflon-economy-put-to-the-test.html#:~:text=It has been nicknamed “Teflon,spasms of violent political unrest.

 

Yes, even in 2014 when there was a lot of political problems, mostly manifesting themselves in Bangkok, exporters in the rest of the country continued to export and tourists in the South and the North, continued to be tourists. None of which impacted the economy negatively because political unrest here is not a factor that impacts THB value on a lasting basis.

Plus the baht is backed by the gun if necessary which makes for stability of sorts !

[nigelforbes]

Perhaps it’s worth explaining the process of how imports and exports are paid for and the associated foreign currency flows.

 

Thai Exporters agree to sell their products to overseas buyers, if financing is required, EXIM, the Export/Import Bank is available to assist. Export contracts are mostly settled in USD although some are paid for by other means, including financing, local currency and currency swaps. Ultimately, the Thai exporter is paid, either directly or via EXIM or into an overseas account. BOT manages all the foreign currency trade aspects, all USD or other currency received from the sale is eventually sold to BOT who returns THB to the exporter and adds the foreign currency to the FCR’s. As you might imagine, most Thai exporters want to convert their foreign currency earnings into usable THB, in order to continue their operations.

 

The primary purpose of the Foreign Currency Reserves is to guarantee trade, international standards are that FCR’s should equal six months of exports, which is broadly what Thailand has.

 

Imports are handled in a similar manner, BOT is the ultimate gate keeper of foreign currency. Any payment sent to the seller overseas will be in foreign currency using FCR’s via the BOT account with the IBS, which out of necessity will involve using both Thai and overseas banks. The value of the FCR are then restored in the form of THB deposited by the purchaser, be they government or private. This means that BOT and the FCR’s see a constant flow of foreign currency in, foreign currency out, and THB in, over a time frame measured in months for a single transaction. Just because BOT exchanges foreign currency for THB, doesn’t mean that THB is no longer part of the FCR’s, it is. If BOT wants to try and weaken THB it must sell THB against USD hence it needs a sizeable supply of Baht on hand at all times. If and when the ratio of foreign currencies to THB becomes unbalanced, BOT buys foreign currencies using Forward Contracts which restores the balance.

 

It is important, I think, to understand the scale of all of this. BOT is managing inbound and outbound FCR payments from Thai banks, EXIM, Government (to pay for oil etc), business and individuals, Capital in and out flows, equities and bond market payments, real estate transactions, overseas social security payments, the list is virtually endless. Average exports have a monthly value of around USD 25 bill, imports are a similar but typically lesser amount, that’s about USD 1.5 bill per day in import/export transactions alone. Every inbound or outbound transaction involving foreign currency and overseas payment or source, involves BOT or its agents. It’s helpful to think of BOT as the single conduit through which all foreign currency payments, inbound and outbound, are made. Thai banks act as agents of BOT in this respect, enforce the BOT regulations and report details of daily volumes back to BOT.

 

https://tradingeconomics.com/thailand/exports

 

https://tradingeconomics.com/thailand/imports

[nigelforbes]

Here's the real time currency exchange links for GBP, USD and THB.

 

The USD DI is down very very slightly, GBP is up, which means more Baht and USD per Pound, whilst Baht per USD is broadly flat.

 

https://finance.yahoo.com/quote/GBPUSD%3DX?p=GBPUSD%3DX

 

https://finance.yahoo.com/quote/THB%3DX?p=THB%3DX

 

https://finance.yahoo.com/quote/GBPTHB%3DX?p=GBPTHB%3DX

 

 

[Skeptic7]

12 hours ago, nigelforbes said:

I personally don't see the term as either positive or negative, it's what it is, the Baht doesn't respond to political upset and after 18 coups in 100 years, who can be suprised!

Totally agree. And what it is, is Teflon Thailand and it's Bulletproof Baht. Coups, unstable and inept leadership, political unrest, demonstrations, airport and major intersection closures for days, drought, floods, near total Covidiocy economy shutdown and on and on. Teflon and Bulletproof. 

[nigelforbes]

30 minutes ago, Skeptic7 said:

Totally agree. And what it is, is Teflon Thailand and it's Bulletproof Baht. Coups, unstable and inept leadership, political unrest, demonstrations, airport and major intersection closures for days, drought, floods, near total Covidiocy economy shutdown and on and on. Teflon and Bulletproof. 

If you think back to 2014 and the unrest in Bangkok, it was all contained in the CBD in Bangkok. The people who actually make up the economy, the manufacturers and the growers, the producers, they aren't there, they're back in their factories and the fields, making, growing and exporting stuff. Inept leadership (if that's what it really is), political unrest, demo's, floods, none of those things stop people from producing and exporting and tourists from holidaying. It's actually quite an enviable economic model.

[Skeptic7]

44 minutes ago, nigelforbes said:

If you think back to 2014 and the unrest in Bangkok, it was all contained in the CBD in Bangkok. The people who actually make up the economy, the manufacturers and the growers, the producers, they aren't there, they're back in their factories and the fields, making, growing and exporting stuff. Inept leadership (if that's what it really is), political unrest, demo's, floods, none of those things stop people from producing and exporting and tourists from holidaying. It's actually quite an enviable economic model.

Well yes, unlivable sub-poverty level wages for most of the the middle class on down is enviable...for companies, corporations and upper echelon. Not so much for the proletariat. 

[Rimmer]

Two off topic posts trying to hijack the topic have been removed

[metisdead]

Some posts with content that was copy and pasted from some sites without providing links to the sources of information have been removed.

 

Some inflammatory bickering posts and replies have been removed.

 

Posts with content from unapproved YouTube sources have been removed.

Edited January 20, 2023 by metisdead

[ExpatOilWorker]

This it fascinating reading and the OP might have something to add as he seems to understand the subject better than most.

China's influence over Thailand sure is growing, but will this also slowly erode the Thai baht's dependency on the US dollar?

https://twitter.com/matthew_pines/status/1616467262256607232?s=20&t=H7N7_ycEnBr25xUL5VVQZg

[nigelforbes]

4 hours ago, ExpatOilWorker said:

This it fascinating reading and the OP might have something to add as he seems to understand the subject better than most.

China's influence over Thailand sure is growing, but will this also slowly erode the Thai baht's dependency on the US dollar?

https://twitter.com/matthew_pines/status/1616467262256607232?s=20&t=H7N7_ycEnBr25xUL5VVQZg

Thanks for posting  this, I've read it a couple of times but it's difficult reading and I'll need time to go through it again to understand it more fully. In the meantime, here's one take on Thailand's reliance on USD.

 

De-dollarization of Thailand’s trade is extremely complicated but it is already under way. The RCEP (regional Comprehensive Economic Partnership) program, which is a regional trade group comprising SE Asian nations plus China, Japan, Australia and Korea is an important part of this because it involves countries that are vying to establish an alternate trading currency, China and Japan. The RCEP group of countries will account for 30% of global trade which makes it hugely influential.

 

“Booming foreign trade has also been reported in some other member countries. Thailand's trade with RCEP member countries, which accounts for around 60 percent of its total foreign trade, rose 10.1 percent year on year to 252.73 billion U.S. dollars in the first nine months of 2022”.

 

https://www.aseanbriefing.com/news/how-will-the-rcep-impact-thailands-economy/

 

Currency swaps between China and Thailand are another part of the RCEP picture. A 5 year bi-lateral Currency Swap Arrangement (BSA) exists valued at RMB 70 bill. and THB 370 bill which avoids the need for cross border payments in USD.

 

There’s an excellent paper on this subject linked below which I highly recommend:

https://www.econstor.eu/bitstream/10419/261216/1/E2021-23.pdf

 

The first question is, why is dedollarization desirable and why are so many countries actively seeking alternate payment currencies? The major answer is that USD is extremely volatile and plays havoc with regional economies, an urgent need exists to adopt a trading currency that is stable and reliable, a combination of China and Japan have the potential to offer that. 

 

Thailand relies on USD exists in two main areas, the importation of oil and trade with its largest trading partner (14%), the US, neither of which are likely to change in the foreseeable future, although given time they almost certainly will. The shift away from fossil fuels will provide an alternative to oil consumption and USD payments for it, as will the rise of China as Thailand’s primary trading partner.  

 

A natural extension to an alternate trading  currency might be an impact on the FOREX and the way in which currencies like the Baht are measured. If the concept of alternatives to USD aren’t complicated enough, the idea of revising the FOREX stretches even the most flexible imagination! But that is something that must happen at some point, the Reserve Currency has to be based on something tangible or on a basket of stable currencies, if it is not, values become meaningless because of debt and the undue leverage the US can bring to bear on competitors.

[KhaoYai]

I've read stories about the Thai gov 'propping up' the baht - I have no idea if there is any truth in it or not.  However, its very strange that the currency of a country that has been through several crises in recent times, manages to remain relatively stable.

 

Taking the most recent crisis - Covid. Covid in a country that's economy probably relies more on tourism that it admits or knows.  How the hell has the baht remained so strong when the country was 'closed' for so long? 

 

I talk regularly to several business people in Thailand - some foreign, some Thai.  None of them report serious financial recovery following Covid, some say things are pretty bad.

 

Again, how does the baht retain its strength?

[nigelforbes]

1 minute ago, KhaoYai said:

I've read stories about the Thai gov 'propping up' the baht - I have no idea if there is any truth in it or not.  However, its very strange that the currency of a country that has been through several crises in recent times, manages to remain relatively stable.

 

Taking the most recent crisis - Covid. Covid in a country that's economy probably relies more on tourism that it admits or knows.  How the hell has the baht remained so strong when the country was 'closed' for so long? 

 

I talk regularly to several business people in Thailand - some foreign, some Thai.  None of them report serious financial recovery following Covid, some say things are pretty bad.

 

Again, how does the baht retain its strength?

The answers to your questions are in the thread and in that lengthy first post. In summary, Thailand is an exporting country, over 60% of its GDP comes from exports. Even though covid closed the country, people continued to work, farmers continued to grow crops and they all continued to export their goods. Plus, the government has a low public debt ratio by comparison to other countries, that plus high Foreign Currency Reserves and low social care overhead costs means the baht remined strong. I would urge you to read the opening post for a more complete answer.

[ikke1959]

I undertand it, but there is 1 thing that I don't understand is that when Prawith says that the rate USD/THB  on 37 is not good, suddenly the THB get stronger....Besides we all know that the rich can switch their THB now into western currency at a cheap price and as soon as the reality of the so called strong manipulated THB will crash they can change again and make big profits...Don't forget who owns the THB

[nigelforbes]

13 minutes ago, ikke1959 said:

I undertand it, but there is 1 thing that I don't understand is that when Prawith says that the rate USD/THB  on 37 is not good, suddenly the THB get stronger....Besides we all know that the rich can switch their THB now into western currency at a cheap price and as soon as the reality of the so called strong manipulated THB will crash they can change again and make big profits...Don't forget who owns the THB

Nobody owns THB. The Prawit comment was coincidental timing and an expression of frustration, not a secret signal, dear God!

[KhaoYai]

43 minutes ago, nigelforbes said:

The answers to your questions are in the thread and in that lengthy first post. In summary, Thailand is an exporting country, over 60% of its GDP comes from exports. Even though covid closed the country, people continued to work, farmers continued to grow crops and they all continued to export their goods. Plus, the government has a low public debt ratio by comparison to other countries, that plus high Foreign Currency Reserves and low social care overhead costs means the baht remined strong. I would urge you to read the opening post for a more complete answer.

I have read your thread.  However, I rely on real world facts and things I'm told by people I know.  Thousands of businesses did not continue to export or exported far less than they had done previously.  Others were closed for a very long time.

 

Taking just one industry that I have knowledge of - automotive parts.  Thailand produces millions of autoparts each year - some for the O.E. market, direct to car manufacturers and some for the aftermarket.  Things are easing now but many products were simply not available here in the West. 

 

Some UK car plants had to cease production regularly because they couldn't get supplies of parts.  With the O.E. market prioritised, the aftermerket suffered the worst.  It took me 6 weeks to get a clutch for my bike!!!

 

I think I can say with some certainty that Thailand's exports were well down during Covid.  If the factories weren't closed, they had staffing problems with so many off work with Covid.

 

Then there's the tourism sector and its supply chain - decimated, no tourism at all. I simply cannot understand how the baht remained so strong. The country's GDP must have been well down.

[nigelforbes]

1 minute ago, KhaoYai said:

I have read your thread.  However, I rely on real world facts and things I'm told by people I know.  Thousands of businesses did not continue to export or exported far less than they had done previously.  Others were closed for a very long time.

 

Taking just one industry that I have knowledge of - automotive parts.  Thailand produces millions of autoparts each year - some for the O.E. market, direct to car manufacturers and some for the aftermarket.  Things are easing now but many products were simply not available here in the West. 

 

Some UK car plants had to cease production regularly because they couldn't get supplies of parts.  With the O.E. market prioritised, the aftermerket suffered the worst.  It took me 6 weeks to get a clutch for my bike!!!

 

I think I can say with some certainty that Thailand's exports were well down during Covid.  If the factories weren't closed, they had staffing problems with so many off work with Covid.

 

Then there's the tourism sector and its supply chain - decimated, no tourism at all. I simply cannot understand how the baht remained so strong. The country's GDP must have been well down.

It was down, so? Anecdotal evidence of your bike clutch is not representative of the economy as a whole. Go look at the export numbers at tradingeconomics.com for the actual numbers. Also, you may not have fully understood how small THB and how little money it takes to change it's value.

[KhaoYai]

1 minute ago, nigelforbes said:

It was down, so? Anecdotal evidence of your bike clutch is not representative of the economy as a whole. Go look at the export numbers at tradingeconomics.com for the actual numbers. Also, you may not have fully understood how small THB and how little money it takes to change it's value.

My bike clutch was just a personal example. My ex brother in law had his business closed down by law for 18 months. Thousands were not working. 

 

Export numbers from Thailand? May I remind you that this is the country who's chief police officers couldn't find any sex for sale in Pattaya!  There's more truth in a kid's fiction book than what comes out from the Thai gov.

[nigelforbes]

Just now, KhaoYai said:

My bike clutch was just a personal example. My ex brother in law had his business closed down by law for 18 months. Thousands were not working. 

 

Export numbers from Thailand? May I remind you that this is the country who's chief police officers couldn't find any sex for sale in Pattaya!  There's more truth in a kid's fiction book than what comes out from the Thai gov.

I can only explain it for you, it's up to you what you believe. But be aware that promoting the flat earth concept isn't always well received at cocktail parties.

[morrobay]

52 minutes ago, ikke1959 said:

I undertand it, but there is 1 thing that I don't understand is that when Prawith says that the rate USD/THB  on 37 is not good, suddenly the THB get stronger....Besides we all know that the rich can switch their THB now into western currency at a cheap price and as soon as the reality of the so called strong manipulated THB will crash they can change again and make big profits...Don't forget who owns the THB

Yes when the baht is weak at 37 they buy baht. Then when it switches up in value at 32 they buy dollars. And it is no coincidence that those that benefit from this are also in influential positions. Again with a very minor currency it is not difficult to do this. Not saying this is the total picture, as outlined by the OP .