The Baht Thread

[nigelforbes]

Chartchai’s column makes interesting reading this morning because he discusses many of the things I’ve mentioned here. He confirms that foreign currency from tourism plays only a very small role in changing the value of the Baht, a point I tried to make earlier. So no matter how many tourists arrive, their direct impact on Baht value wont make much difference.

 

He does however make the connection between foreign currency income from tourism (est. USD2.4 bill) and a much larger than expected increase in the Foreign Currency Reserves during January (USD 5 bill.). Why the increase? He suggest that the increase might be FDI, specifically, USD trying to escape Dollar depreciation which is likely to be only temporary (the DI is down from 115 to 102). Higher than forecast interest rates in the US this year (6% not 5.5%), plus the higher than expected cost of oil, should see that flow of hot money reverse, at some point. All those things combined means that USD could strengthen because of the interest rate premium and to pay for the higher oil cost, all very logical.

 

But he is as uncertain as anyone else about the future direction of the Baht, which given the above hypothesis should mean the Baht weakens. There are only so many factors that can influence Baht value and they are all well known, current account deficit/surplus, exports versus imports, tourism levels and FDI flows are the main ones. Exports is the biggest factor but that depends almost entirely on economic conditions outside Thailand so they can’t be controlled, only influenced by Baht weakness which pretty much relies on a strong Dollar. You see the dichotomy here, we need USD to strengthen so that the Baht will weaken, which will mean greater export sales which will cause the Baht to strengthen! The sooner the Baht/USD is replaced with a better alternative, the better.

 

Anyway, read Chartchai’s column today, it’s excellent.

[ExpatOilWorker]

4 hours ago, nigelforbes said:

He confirms that foreign currency from tourism plays only a very small role in changing the value of the Baht,

 

4 hours ago, nigelforbes said:

There are only so many factors that can influence Baht value and they are all well known, current account deficit/surplus, exports versus imports, tourism levels

If tourism is only playing a very small role in the value of the baht, then it shouldn't be included in the list of factors that influence the Thai baht.

[nigelforbes]

10 minutes ago, ExpatOilWorker said:

 

If tourism is only playing a very small role in the value of the baht, then it shouldn't be included in the list of factors that influence the Thai baht.

If tourism levels didn't pay any role in Baht strength, I might agree. But they do play some role, it's just not as big as everyone thinks it is and relative to FDI and exports value, it appears smaller. It you think about it, how many tourists who visit Thailand, from which countries, actually sell USD and buy THB, not many I would think. 

[ExpatOilWorker]

1 hour ago, nigelforbes said:

If tourism levels didn't pay any role in Baht strength, I might agree. But they do play some role, it's just not as big as everyone thinks it is and relative to FDI and exports value, it appears smaller. It you think about it, how many tourists who visit Thailand, from which countries, actually sell USD and buy THB, not many I would think. 

I think our good Chartchai under-play the Importance of tourism when he is looking at the shot-term 2 week swing in foreign reserve.

Once tourist numbers are back at 3 million/month $1 billion of "free" hard currency will roll in every week.

Capital inflow on the other hand can go both ways and dissappear as fast as it came in.

All tourist are not alike, some arrive with very deep pockets: 

Exodus of Wealthy Chinese Accelerates With End of Covid Zero https://www.bloomberg.com/news/articles/2023-01-25/rich-chinese-plan-to-leave-with-money-with-covid-zero-s-end

[nigelforbes]

14 hours ago, ExpatOilWorker said:

I think our good Chartchai under-play the Importance of tourism when he is looking at the shot-term 2 week swing in foreign reserve.

Once tourist numbers are back at 3 million/month $1 billion of "free" hard currency will roll in every week.

Capital inflow on the other hand can go both ways and dissappear as fast as it came in.

All tourist are not alike, some arrive with very deep pockets: 

Exodus of Wealthy Chinese Accelerates With End of Covid Zero https://www.bloomberg.com/news/articles/2023-01-25/rich-chinese-plan-to-leave-with-money-with-covid-zero-s-end

I don't know if his theory about FDI at the start of the year is correct but it sounds as good as anything I can come up with. January however, often marks the beginning of a new accounting period so there may be other reasons to explain the FDI flow, I dunno.

 

I agree that all tourists are not alike but I don't believe that Chinese tourists are unique or more valuable. They typically exchange Yuan for Baht which has very little direct impact on the USD/Baht exchange rate, their local spending will help the overall economy and help bolster the Foreign Currency Reserves, But they wont do much for THB value, even if there is 1 billion a month. In fact, there aren't that many countries where citizens use USD and who visit Thailand as tourists, in any volume.

 

And a quick note about Foreign Currency Reserves (FCR's) before I forget: The IMF recommends that FCR's should be equal to about 6 months exports value but no less than 3 months. That means that anything over that amount should be available for the country to use. If Thailand's GDP is currently USD 506 bill., that means FCR's should be no more than USD 253 bill., in December the FCR's were valued at nearly USD  246 bill. hence we're very close to the recommended ceiling.

[ExpatOilWorker]

2 hours ago, nigelforbes said:

They typically exchange Yuan for Baht which has very little direct impact on the USD/Baht exchange rate,

When Fernando from Mexico withdraw 5,000 Baht on his ATM card to pay Noi for services rendered, don't the BOT settle the transaction in USD with the corresponding Mexican bank?

Somehow I don't envision BOT having a special Peso shelf in their underground vault. 

Similar, when the Chinese locust arrives, they also leave a trail of greenbacks and not redbacks behind.

[nigelforbes]

24 minutes ago, ExpatOilWorker said:

When Fernando from Mexico withdraw 5,000 Baht on his ATM card to pay Noi for services rendered, don't the BOT settle the transaction in USD with the corresponding Mexican bank?

Somehow I don't envision BOT having a special Peso shelf in their underground vault. 

Similar, when the Chinese locust arrives, they also leave a trail of greenbacks and not redbacks behind.

Hmmm, unsure here. I think this is about visa networks rather than BOT. 

 

Fernando withdraws 5k Baht which is given to him by the bank that owns the ATM. Visa (who owns the network) then issues a debit against Fernando's account in Mexico where his account is then debited accordingly. The last step is for the Mexican bank to reimburse the bank that issued the 5K to Fernando, via the ATM and that is done by Visa as part of their settlement process. I am not certain but I think that settlement takes place outside Thailand, I imagine via the Bank of International Settlements? The Thai bank that owns the ATM is the agent of BOT and must report the transaction to BOT as part of its normal reporting. I don't see anywhere in that process that THB is directly purchased using USD, except possibly via the Visa settlement process and even that is questionable. Perhaps if anyone else understands the Visa settlement process in detail, it would be super helpful.

 

EDIT TO ADD: Regardless of how the Mexican currency trade is settled, I can't see the Baht/Yuan  trade being settled via USD, that doesn't seem likely to me.

Edited January 27, 2023 by nigelforbes

[ExpatOilWorker]

9 hours ago, nigelforbes said:

Hmmm, unsure here. I think this is about visa networks rather than BOT. 

 

Fernando withdraws 5k Baht which is given to him by the bank that owns the ATM. Visa (who owns the network) then issues a debit against Fernando's account in Mexico where his account is then debited accordingly. The last step is for the Mexican bank to reimburse the bank that issued the 5K to Fernando, via the ATM and that is done by Visa as part of their settlement process. I am not certain but I think that settlement takes place outside Thailand, I imagine via the Bank of International Settlements? The Thai bank that owns the ATM is the agent of BOT and must report the transaction to BOT as part of its normal reporting. I don't see anywhere in that process that THB is directly purchased using USD, except possibly via the Visa settlement process and even that is questionable. Perhaps if anyone else understands the Visa settlement process in detail, it would be super helpful.

 

EDIT TO ADD: Regardless of how the Mexican currency trade is settled, I can't see the Baht/Yuan  trade being settled via USD, that doesn't seem likely to me.

The VISA card system seems to be a membership organization operating within BIS using 180 different transaction currencies. 

That does however not answer how BOT settle cross-border transaction, but since BOT mainly hold USD, I suspect most exotic tourist currencies, including Yuan, is converted to USD.

 

d53p16.pdf

[nigelforbes]

39 minutes ago, ExpatOilWorker said:

The VISA card system seems to be a membership organization operating within BIS using 180 different transaction currencies. 

That does however not answer how BOT settle cross-border transaction, but since BOT mainly hold USD, I suspect most exotic tourist currencies, including Yuan, is converted to USD.

 

d53p16.pdf 135.88 kB · 0 downloads

I'm going to need some time to research this, I don't mean to imply this is about VisaCard but instead is about the Visa network and Visa settlement. If all tourist currencies were converted to USD first, that would make tourist income the most powerful mover of  THB value which I don't think it is and Chartchai already said it isn't.  I continue to think that the most probable answer is that Visa (and other networks) issues debits and credits to the issuing and payee banks which are then totalled and settled via BIS and that BOT only plays a passive role in this.

 

Give me a little time on this and I'll come back with my thoughts.

[hello55060]

Visa and MasterCard set the exchange rate everyday. Depending on what day your bank actually settles your transaction. Usually 2-3 after a purchase abroad. That's the rate you'll get when it's actually settled. Not when you pay. 

 

https://www.visa.co.th/en_TH/support/consumer/travel-support/exchange-rate-calculator.html

 

https://www.mastercard.us/en-us/personal/get-support/convert-currency.html

 

Plus the bank fee which most is usually 2-3% unless you have a account with 0 foreign transaction fees.

 

 

 

 

[nigelforbes]

40 minutes ago, hello55060 said:

Visa and MasterCard set the exchange rate everyday. Depending on what day your bank actually settles your transaction. Usually 2-3 after a purchase abroad. That's the rate you'll get when it's actually settled. Not when you pay. 

 

https://www.visa.co.th/en_TH/support/consumer/travel-support/exchange-rate-calculator.html

 

https://www.mastercard.us/en-us/personal/get-support/convert-currency.html

 

Plus the bank fee which most is usually 2-3% unless you have a account with 0 foreign transaction fees.

 

 

 

 

Yes, thanks, but that's not what we're discussing. The issue is the process used to settle cross border transactions and whether the Central Bank plays a role or just BIS.

[nigelforbes]

2 hours ago, ExpatOilWorker said:

The VISA card system seems to be a membership organization operating within BIS using 180 different transaction currencies. 

That does however not answer how BOT settle cross-border transaction, but since BOT mainly hold USD, I suspect most exotic tourist currencies, including Yuan, is converted to USD.

 

d53p16.pdf 135.88 kB · 1 download

OK, I think this is almost certainly about the network, be it Visa, Mastercard, Cirrus, Maestro or whatever, and P2P transactions which involve the recipient and issuer banks but not the Central Bank. Every bank and ATM must belong to a network. The likes of Visa do the currency conversion offshore Thailand (which is in effect settlement), an example is Visa Direct shown below using Dynamic Currency Conversion or DCC (which is optional but allows for a choice of currency conversions). 

 

https://www.investopedia.com/dynamic-currency-conversion-dcc-term-4769305#:~:text=What Is Dynamic Currency Conversion,cardholder preferred currency (CPC).

 

 

 

 

 

[Phulublub]

1 hour ago, nigelforbes said:

Yes, thanks, but that's not what we're discussing. The issue is the process used to settle cross border transactions and whether the Central Bank plays a role or just BIS.

I think it unlikley that every Central Bank across the world is directly involved...that is BIS role, surely.

 

I suspect that they will net off all ins and outs to arrive at net balances before anything moves anywhere. 

 

As the primary World currency it would make sense for the end result to be settled in dollars with those in deficit paying USD and those in surplus receiving USD.   Day to day fluctuations in and out would be minor in the grand scheme, the overall balance and trend being way more important.

 

PH

[nigelforbes]

There is no requirement anywhere that all currency conversions/payments must first be made into USD before they are converted to the destination currency, that is clearly incorrect. USD is for reference only. There is a global practise (not a requirement) that export bills are paid (mostly, about 60%) in USD because that makes price comparisons across a range of currencies easier and it reduces volatility of less stable currency pairs. Even that practise is being used less and less as currency swaps and direct payment between buying and and selling currencies are adopted.

 

The conversion of currencies involved in payment is  done directly without using an intermediate currency, the calculation of the exchange rate involves the value of USD but that does not mean a physical transfer is made into USD.  As was said earlier, visa networks manages over 180 currency pairs. Networks such as Visa and Mastercard (and others) are able to convert payments between the origin and the destination currency directly and in real time, using P2P networks that involve only the banks. In Thailand (at least), banks here are agents of the Central Bank, they enforce Central Bank policy and administer it hence they are really an extension of the BOT. 

 

When I put my HSBC UK debit card into an ATM (that is connected to a visa network or similar) at a bank in Thailand, my request to withdraw 1,000 baht is routed via the network to determine if my account has sufficient funds. The currency conversion value, THB/GBP, is determined using cross currency pair buy/sell rates that include a margin,  a network fee and bank charge by the issuing bank, how these fees are packaged and split will vary. As long as the transaction is authorised by my UK bank, the Thai ATM will hand me 1,000 baht. If it is authorised, the network issues a debit to HSBC UK and a credit to the Thai bank. Both are settled at end of day via Visa's netting  process and via the Central Banks, using real time FOREX rates held by the network and using stored currencies from other transactions. Visa receives GBP (or a credit for) from HSBC  UK and pays THB to the Thai bank, and retains it's margin on the transaction. USD is not physically involved, only the reference to its value for the exchange rate is. What the FOREX sees is non-USD transactions (quite rightly) hence the value of USD/THB doesn't change.

 

Edited January 27, 2023 by nigelforbes

[nigelforbes]

Here's a readable overview of settlement which is done directly with visa member banks:

 

https://www.theglobaltreasurer.com/2005/02/14/clearing-and-settlement-in-payment-card-schemes/

[ExpatOilWorker]

On 1/28/2023 at 5:50 AM, nigelforbes said:

There is no requirement anywhere that all currency conversions/payments must first be made into USD before they are converted to the destination currency, that is clearly incorrect. USD is for reference only. There is a global practise (not a requirement) that export bills are paid (mostly, about 60%) in USD because that makes price comparisons across a range of currencies easier and it reduces volatility of less stable currency pairs. Even that practise is being used less and less as currency swaps and direct payment between buying and and selling currencies are adopted.

 

The conversion of currencies involved in payment is  done directly without using an intermediate currency, the calculation of the exchange rate involves the value of USD but that does not mean a physical transfer is made into USD.  As was said earlier, visa networks manages over 180 currency pairs. Networks such as Visa and Mastercard (and others) are able to convert payments between the origin and the destination currency directly and in real time, using P2P networks that involve only the banks. In Thailand (at least), banks here are agents of the Central Bank, they enforce Central Bank policy and administer it hence they are really an extension of the BOT. 

 

When I put my HSBC UK debit card into an ATM (that is connected to a visa network or similar) at a bank in Thailand, my request to withdraw 1,000 baht is routed via the network to determine if my account has sufficient funds. The currency conversion value, THB/GBP, is determined using cross currency pair buy/sell rates that include a margin,  a network fee and bank charge by the issuing bank, how these fees are packaged and split will vary. As long as the transaction is authorised by my UK bank, the Thai ATM will hand me 1,000 baht. If it is authorised, the network issues a debit to HSBC UK and a credit to the Thai bank. Both are settled at end of day via Visa's netting  process and via the Central Banks, using real time FOREX rates held by the network and using stored currencies from other transactions. Visa receives GBP (or a credit for) from HSBC  UK and pays THB to the Thai bank, and retains it's margin on the transaction. USD is not physically involved, only the reference to its value for the exchange rate is. What the FOREX sees is non-USD transactions (quite rightly) hence the value of USD/THB doesn't change.

 

I agree with your last statement, that the USD/THB exchange rate does not change, but for a different reason.

Fernando withdraws 5,000 baht from a Kasikorn ATM, 3,000 pesos is deducted from his Banco Amigo account in Mexico. The clearing bank in NY don't want pesos, so Banco Amigo ask Bank of Mexico for $150 which they wire through the clearing bank to Kasikorn Bank.

Kasikorn Bank may hold the $150 on their books for a few days, but since Fernando keeps coming back for more, soon Kasikorn hands over the $150 to BOT and get another 5,000 baht.

BOT have now increased the foreign reserve of Thailand with $150, but at the same time the broad money supply M2 has been increasing by 5,000 baht. In short, there are more baht in circulation, but they are backed by an identical increase in foreign reserve, hence supply and demand is unchanged and the Thai baht exchange rate should stay flat.

 

[nigelforbes]

53 minutes ago, ExpatOilWorker said:

I agree with your last statement, that the USD/THB exchange rate does not change, but for a different reason.

Fernando withdraws 5,000 baht from a Kasikorn ATM, 3,000 pesos is deducted from his Banco Amigo account in Mexico. The clearing bank in NY don't want pesos, so Banco Amigo ask Bank of Mexico for $150 which they wire through the clearing bank to Kasikorn Bank.

Kasikorn Bank may hold the $150 on their books for a few days, but since Fernando keeps coming back for more, soon Kasikorn hands over the $150 to BOT and get another 5,000 baht.

BOT have now increased the foreign reserve of Thailand with $150, but at the same time the broad money supply M2 has been increasing by 5,000 baht. In short, there are more baht in circulation, but they are backed by an identical increase in foreign reserve, hence supply and demand is unchanged and the Thai baht exchange rate should stay flat.

 

You missed out the part about Isabella, Fernando's wife. She's pulling 12 hour shifts in the tortilla factory, wondering why Fernando's in Pattaya and she's seeing all these 5k baht withdrawals from an ATM on Soi 6! ????

 

We agree on the answer, that's good, I can also agree on the M2 aspect. But the process, well.......!

 

How did we get from Fernando being given his 5k Baht in Thailand to 3k peso's being withdrawn from his Mexican bank account. Who did the second part of that, how?

 

And then, "Banco Amigo ask Bank of Mexico for $150 which they wire through the clearing bank to Kasikorn Bank". You don't mean settlement here (presumably)? That seems like a pretty labour intensive process Bank Amigo and the Mexican Central Bank have to go through, every time a Mexican bank customer wants 5k Baht in Thailand!

 

I'm inclined to stay with the P2P transfer and Visa solution for the moment, but will point out to others that the above only applies to electronic and card based transfer/payments/withdrawals, not in person foreign currency transactions in Thailand. I shall dig further.

 

 

 

 

[ExpatOilWorker]

17 hours ago, nigelforbes said:

And then, "Banco Amigo ask Bank of Mexico for $150 which they wire through the clearing bank to Kasikorn Bank". You don't mean settlement here (presumably)? That seems like a pretty labour intensive process Bank Amigo and the Mexican Central Bank have to go through, every time a Mexican bank customer wants 5k Baht in Thailand!

I didn't mean to imply that the central banks are involved in every single visa transaction, each national bank settle their foreign currency holdings daily, probably around noon.

[ExpatOilWorker]

17 hours ago, nigelforbes said:

You missed out the part about Isabella, Fernando's wife. She's pulling 12 hour shifts in the tortilla factory, wondering why Fernando's in Pattaya and she's seeing all these 5k baht withdrawals from an ATM on Soi 6! ????

Child birth was not kind to Isabella and she took advantage of too many free tortillas at the factory, as far as Fernando is concerned she might as well just join the pile of women resting around Juárez.

Noi is important for our story. Fernando is hard at it and soon BOT have an extra $1,000 on their balance sheet, but then Noi rushes out and buy the latest iPhone.

Apple transfer the profit back to Cupertino and the BOT have to let go of their $1000.

That is not a problem as Thailand now have +1 iPhone and Noi have increased her earning potential thanks to Tinder.

Sadly Noi soon drops her new phone and it shatters in 1,000 pieces. Noi and Thailand  ow have nothing.

That is the reason FDI is more Important for Thailand. The BOI is very picky of what industries they let invest in Thailand.  Fixed asset investments that support an export industry is what they want. They is why we have everything from Ecco shoes, Danish porcelain, Japanese car manufacturers to Western Digital.

Vietnam is doing the same thing and that is why we have seen Samsung and Panasonic relocation in recent years. 

[nigelforbes]

Just now, ExpatOilWorker said:

Child birth was not kind to Isabella and she took advantage of too many free tortillas at the factory, as far as Fernando is concerned she might as well just join the pile of women resting around Juárez.

Noi is important for our story. Fernando is hard at it and soon BOT have an extra $1,000 on their balance sheet, but then Noi rushes out and buy the latest iPhone.

Apple transfer the profit back to Cupertino and the BOT have to let go of their $1000.

That is not a problem as Thailand now have +1 iPhone and Noi have increased her earning potential thanks to Tinder.

Sadly Noi soon drops her new phone and it shatters in 1,000 pieces. Noi and Thailand  ow have nothing.

That is the reason FDI is more Important for Thailand. The BOI is very picky of what industries they let invest in Thailand.  Fixed asset investments that support an export industry is what they want. They is why we have everything from Ecco shoes, Danish porcelain, Japanese car manufacturers to Western Digital.

Vietnam is doing the same thing and that is why we have seen Samsung and Panasonic relocation in recent years. 

Excellent, too funny and a great analogy. Thanks!

 

I'll have a go at the other stuff later, I'm full on this AM.

[nigelforbes]

Your understanding of the bigger picture is better than mine at present. I confess I am at the limits of my knowledge at this point and can't manage to find anything that paints a conclusive picture, for me. I do accept that your interpretation may be correct, it's just that I can't put my hand on my heart and say it is. I have hands on experience with NACHA and SWIFT and also with APACS etfpos, the part I'm not certain about is international clearings and cross border POS which I was hoping somebody else on AN could help clarify. The other aspect I'm unsure about is whether all cross border transactions are treated in the same way, I think that retail sales and cash with drawls may be handled differently , as might transactions involving RMB versus other currencies. I shall keeping looking and may tap some contacts for input.

[nigelforbes]

Baht news from Bloomberg, all very upbeat and positive on the economy and the currency:

 

"The Thai currency is forecast to average 32.50 to a US dollar this year,"

 

https://finance.yahoo.com/news/thai-finance-ministry-sees-sustained-054329558.html

[nigelforbes]

Everyone is of course looking for the exchange rate crystal ball and tips for what will happen to the rate in the future. Whilst that doesn't exist in real time, there are things that help point towards this in slow time. For example, the relationship between what's happening to the stock market indices and the Dollar exchange rate.

 

USD and the S&P are mostly negatively correlated, which means when one rises, the other falls, most of the time. When USD strengthens, it takes fewer Dollars to buy assets such as oil and gold and equities prices will typically fall. Also, when USD strengthens, investors typically go in search of cheaper assets overseas, this means more hot money and FDI for economies such as Thailand. An old rule of thumb is, equities up, currency down, and vica versa.

 

In summary, in very simplistic terms, a strengthening Dollar implies equities may be weakening and that the Baht is weakening against USD, which is partially offset by FDI inflows - these things are exactly what happened in 3rd and 4th quarters last year.. The degree to which these things are true is determined by the extent or severity of the strengthening or weakening of the Dollar, the greater the moves, the more likely THB will move in the opposite direction. For example:

 

1 October 2022

S&P - 3,585

USD/THB - 37.80

 

1 February 2023

S&P - 4,077

USD/THB - 32.87

 

That's all well and good you say but I don't care about yesterday, I want to know about tomorrow. That answer depends on the US Fed and markets reaction to what is said (today, US time) about inflation, because that will  determine the direction of both markets and USD and ultimately point to what will happen to one of the great influences on Baht value. Don't lose sight though of what is happening on the Baht side of the equation, which at present appears quite strong. 

 

[nigelforbes]

The US Federal Reserve spoke and they are happy with inflation. Equities (S&P) rallied and USD slumped against the Baht and the Pound.

 

USD down, Pound up, Baht up.

[ExpatOilWorker]

3 hours ago, nigelforbes said:

The US Federal Reserve spoke and they are happy with inflation. Equities (S&P) rallied and USD slumped against the Baht and the Pound.

 

USD down, Pound up, Baht up.

Lets not forget that the Fed have a dual mandate of "pursuing the economic goals of maximum employment and price stability.", so while Powell might be OK'ish with inflation he is probably more worried about employment numbers if and when the next recession cycle come. I don't think Paulson and Bernanke had a crazy fun time in 2008.

When discussing USD exchange rates it is impossible not to notice the whopping $500 billion US trade deficit. If any other country had that kind of deficit, they would be where Pakistan and Sri Lanka are now, begging IMF for handouts. 

So is the US trade deficit good or bad?

In fact, it is neither.  It is a must and a stabilizing effect for the world economy. As the world economy grows central banks around the world need ever larger amount of US dollar, which they get courtesy of the American consumers. 

Bretton Woods still works, after nearly 80 years.

[nigelforbes]

The US jobs report came in hot and showed lower unemployment, the Dollar strengthened and the Pound fell, Pound/Baht came out the looser.....US equities shed gains as a result, Dollar up, equities down.

 

More people being hired means stronger growth downstream, that means a stronger USD. It also means higher interest rates for longer, also USD positive. The Fed. has got a tough job on its hands.

 

There's nothing good going on with the Pound, it's back to flirting with 1.20 again.

 

The bottom line.....buying Baht with USD is getting more attractive, buying with Pounds is going to get ugly. There may be an opportunity this year for those wanting to repatriate Baht to Pounds. 

[ExpatOilWorker]

On 1/28/2023 at 5:50 AM, nigelforbes said:

There is no requirement anywhere that all currency conversions/payments must first be made into USD before they are converted to the destination currency, that is clearly incorrect. USD is for reference only. There is a global practise (not a requirement) that export bills are paid (mostly, about 60%) in USD because that makes price comparisons across a range of currencies easier and it reduces volatility of less stable currency pairs. Even that practise is being used less and less as currency swaps and direct payment between buying and and selling currencies are adopted.

 

The conversion of currencies involved in payment is  done directly without using an intermediate currency, the calculation of the exchange rate involves the value of USD but that does not mean a physical transfer is made into USD.  As was said earlier, visa networks manages over 180 currency pairs. Networks such as Visa and Mastercard (and others) are able to convert payments between the origin and the destination currency directly and in real time, using P2P networks that involve only the banks. In Thailand (at least), banks here are agents of the Central Bank, they enforce Central Bank policy and administer it hence they are really an extension of the BOT. 

 

When I put my HSBC UK debit card into an ATM (that is connected to a visa network or similar) at a bank in Thailand, my request to withdraw 1,000 baht is routed via the network to determine if my account has sufficient funds. The currency conversion value, THB/GBP, is determined using cross currency pair buy/sell rates that include a margin,  a network fee and bank charge by the issuing bank, how these fees are packaged and split will vary. As long as the transaction is authorised by my UK bank, the Thai ATM will hand me 1,000 baht. If it is authorised, the network issues a debit to HSBC UK and a credit to the Thai bank. Both are settled at end of day via Visa's netting  process and via the Central Banks, using real time FOREX rates held by the network and using stored currencies from other transactions. Visa receives GBP (or a credit for) from HSBC  UK and pays THB to the Thai bank, and retains it's margin on the transaction. USD is not physically involved, only the reference to its value for the exchange rate is. What the FOREX sees is non-USD transactions (quite rightly) hence the value of USD/THB doesn't change.

 

I deliberately wanted to keep the GBP out of the discussion, as central banks still hold pounds in their currency mix. The debate is whether USD is involved in a tourist transaction between two banana republic currencies. I think yes, even with a Yuan transaction,  you seem to think otherwise. 

Paul Krugman has a short dollar write up, that kind of support my side of the argument. 

The same article is available for free in a local Thai newspaper with the capitals name in it.

 

https://www.nytimes.com/2023/02/03/opinion/us-dollar-reserve-currency.html

[nigelforbes]

7 minutes ago, ExpatOilWorker said:

I deliberately wanted to keep the GBP out of the discussion, as central banks still hold pounds in their currency mix. The debate is whether USD is involved in a tourist transaction between two banana republic currencies. I think yes, even with a Yuan transaction,  you seem to think otherwise. 

Paul Krugman has a short dollar write up, that kind of support my side of the argument. 

The same article is available for free in a local Thai newspaper with the capitals name in it.

 

https://www.nytimes.com/2023/02/03/opinion/us-dollar-reserve-currency.html

Thanks, I'll read the Thai paper version. IF, BIS were to settle a cross border transaction between the Central Banks of two banana republics, merely by debiting and crediting their foreign currency reserve accounts, would that still be a USD transaction in your view? After reading the BIS website and looking for more information,I increasingly think this is what happens since one of BIS's strengths is settling cross border transactions using any of the 180 currency pair exchange rates they manage via the FOREX. https://www.bis.org/banking/finserv.htm This type of foreign currency netting arrangement is a natural extension of the ACH/Fed settlement process which is why is seems like a logical answer for me. But again, I may be wrong, I don't know.

 

You may have seen I tried to open the issue up to a wider audience to see if their was somebody lurking who knows the answer, I might as well have asked if there are any retired brain surgeons out there...:)

 

I'll read Klugman.

 

 

 

 

[driver52]

On 2/1/2023 at 10:04 PM, nigelforbes said:

USD down, Pound up, Baht up.

that was probs shorts closing, DXY well up now 

interesting thread, I'll read the rest of it now lol.........are you English out of interest nigel?

[driver52]

31 minutes ago, ExpatOilWorker said:

Paul Krugman

Krugman always always has an agenda