The Baht Thread

[driver52]

On 1/18/2023 at 11:40 PM, nigelforbes said:

Whilst some believe that the BOT manipulate the value of the Baht, it is highly improbable that they do

I'm highly doubtful of this comment.....ALL CBs (central banks) manipulate the value of their currencies........in fact the Yankees even heavily manipulate other countries ie Japan, have you watched 'Princes of the Yen'?

PS I read the rest and I generally agree that CBs 'weaken currencies' hence the expression 'race to the bottom' 

[nigelforbes]

36 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

I read Krugman but didn't think his Indian Rupees and Brazilian Rials example was a conclusive argument, although it did make me think that in that particular scenario they would have to deploy a USD middleman because of the rarity of the pair. If you substitute other more heavily traded currency pairs, I think the Dollar middleman argument becomes less compelling since both parties to the trade would likely already hold the others currency, in their reserves. Which may point towards variables whereby USD is deployed into the transaction when one or the other parties doesn't hold the counterparties currency. Dunno, more WAG at this stage .:)

[nigelforbes]

5 minutes ago, driver52 said:

I'm highly doubtful of this comment.....ALL CBs (central banks) manipulate the value of their currencies........in fact the Yankees even heavily manipulate other countries ie Japan, have you watched 'Princes of the Yen'?

I really don't want to get into a manipulation debate, I leave that to others in different places so please don't go there in this thread. But if you know anything about international settlements and the role of USD in cross border transactions, that will be great.

[driver52]

On 1/19/2023 at 4:19 AM, nigelforbes said:

The US DI soared to 115% because markets expected the Fed to do something but they didn't know what.

I suggest it soared because Euro and Yen are doing good impressions of 'toilet paper' which at the end of the day, is all FIAT is 

oh yeah GBP is 'low value toilet paper' too and getting worse every day cos of a 'failed economy based on benefits and house prices' 

[driver52]

10 minutes ago, nigelforbes said:

the role of USD in cross border transactions, that will be great.

well I'm certainly interested in 'the death of the petrodollar' and the rise of CBs who peg the value of their FIAT to gold AND what the future holds in regard to CBDC.........the rest is purely speculation eh? but that in itself can be quite entertaining too....

cheers

[nigelforbes]

3 minutes ago, driver52 said:

I suggest it soared because Euro and Yen are doing good impressions of 'toilet paper' which at the end of the day, is all FIAT is 

oh yeah GBP is 'low value toilet paper' too and getting worse every day cos of a 'failed economy based on benefits and house prices' 

The Dollar Index soared in value because investors and banks were buying USD, that is very clear.

 

Can I just reaffirm with you the scope of the thread which we want keep fairly tight? It's focus is THB and in particular its relationship with USD and other major currencies, that's why it's called the Baht Thread. At present we're trying to bottom out how how BOT's Foreign Currency Reserves benefit, if at all, from international tourism in Thailand, that's why we're trying to understand the global interbank settlement process. If we could stick to that as the core discussion, for the time being, that would be good. 

[driver52]

9 minutes ago, nigelforbes said:

that's why we're trying to understand the global interbank settlement process.

as in SWIFT? it's on it's last legs......it'll be replaced by the blockchain........the naughty Russians and chinese are already using an alternative eh?

anyway, back to crystal ball gazing 

PS just so I don't like a total looney lol

 

For all these reasons, the relative decline of the US dollar as the main reserve currency is likely to occur over the next decade. The intensifying geopolitical contest between Washington and Beijing will inevitably be felt in a bipolar global reserve currency regime as well.

https://www.ft.com/content/e03d277a-e697-4220-a0ca-1f8a3dbecb75

 

[driver52]

13 minutes ago, nigelforbes said:

The Dollar Index soared in value because investors and banks were buying USD, that is very clear

point of order judge, it's a 2 way thing, they're not necessarily 'buying USD' they are selling the trash that is Euro and Yen......so ok maybe they're 'forced buyers of USD' but the way the trade is working they rather be 'sellers'

[nigelforbes]

6 minutes ago, driver52 said:

as in SWIFT? it's on it's last legs......it'll be replaced by the blockchain........the naughty Russians and chinese are already using an alternative eh?

anyway, back to crystal ball gazing 

PS just so I don't like a total looney lol

 

For all these reasons, the relative decline of the US dollar as the main reserve currency is likely to occur over the next decade. The intensifying geopolitical contest between Washington and Beijing will inevitably be felt in a bipolar global reserve currency regime as well.

https://www.ft.com/content/e03d277a-e697-4220-a0ca-1f8a3dbecb75

 

SWIFT is not a settlement system it is a messaging system that is then followed by the things we are trying to discuss, international settlement! Member banks send secure messages to each other to describe a particular transaction. That results in funds being debited at one bank and credited at another. The process of balancing the books between the two banks is what international settlement is.

[nigelforbes]

3 minutes ago, driver52 said:

point of order judge, it's a 2 way thing, they're not necessarily 'buying USD' they are selling the trash that is Euro and Yen......so ok maybe they're 'forced buyers of USD' but the way the trade is working they rather be 'sellers'

This is the US DI, it is an index that measures the extent to which USD has been bought or sold, against what is not really of interest to the DI.

 

https://www.marketwatch.com/investing/index/dxy

 

 

[driver52]

5 minutes ago, nigelforbes said:

it is an index that measures the extent to which USD has been bought or sold, against what is not really of interest to the DI.

OF course it is!! the very fact that USDJPY soared to 149 last year and hence DXY hit over 110 was cos of a week yen.....

it's a 'basket of foreign currencies'

https://www.investopedia.com/terms/u/usdx.asp

[nigelforbes]

4 minutes ago, driver52 said:

OF course it is!! the very fact that USDJPY soared to 149 last year and hence DXY hit over 110 was cos of a week yen.....

it's a 'basket of foreign currencies'

https://www.investopedia.com/terms/u/usdx.asp

Yes indeed the DI is a basket of currencies. But if you think the cause of USD DI strengthening to 115 was a direct result of YEN weakness, you need to do some research. May I suggest you start by looking at the one year USD/GBP, USD/YEN etc graphs and compare them against the DI over the same period. 

 

https://www.xe.com/currencycharts/?from=USD&to=GBP

https://www.xe.com/currencycharts/?from=USD&to=JPY

 

Look, I don't really want to have a debate with you or anyone else about the DI, blockchain or many of the things that you seem to want to touch on. I'm going to leave you to get on with whatever you want to say and then perhaps later, when things have settled down a bit, we can get back to the subject of the thread. Thanks

[nigelforbes]

Chartchai's column in the Post this morning makes excellent reading yet again. He argues that all the good things that have happened to the economy in recent months are nothing more than pent up demand and that the future looks less rosy. Tourism numbers however should continue to increase, whether to 23 or 25 million in 2023 seems like a pointless debate....the numbers are on the up and revenue from tourism, the EXPORT OF SERVICES, is good. 

 

But exports from manufacturing are vital to the economy because the country is (overly) dependent on exports, over 70%, compared to a global average of only 28%.

 

If his hypothesis is correct and exports do turn lower, that points towards a possible balance of payments gap, unless inbound FDI rides to the rescue. But with the interest rate differential being so large, I'm betting that wont happen, in which case a weaker or flat baht may be on the cards. As always however, what happens to USD and the US economy remains the key.

 

Read Chartchai's column, it's well written and very informative.

 

 

 

 

[Jai Dee]

A reported troll post has been removed.

[nigelforbes]

Hot money is flowing out of Thai equities on rate increase concerns in March, over USD 0.5 bill since 1 February. That outflow saw the Baht weaken by one baht against USD, now recovering slightly. 

[nigelforbes]

2022 automobile production and sales statistics for Asean countries, linked below.

 

https://www.asean-autofed.com/files/AAF_Statistics_2022.pdf

 

Thailand leads production output of motor vehicle by a substantial margin and production output of motorbikes and scooters by a massive amount. Thailand came second in vehicle sales but first in m/bike and scooter sales. The segment is buoyant.

 

MoM and prior years data is here:

 

https://www.asean-autofed.com/statistics.html

[Isaan sailor]

Very thoughtful and thorough explanation—thank you.

Most concerning point: the Baht has a natural tendency to appreciate.  Can you elaborate please?  And do western currencies share this trait?

[nigelforbes]

15 minutes ago, Isaan sailor said:

Very thoughtful and thorough explanation—thank you.

Most concerning point: the Baht has a natural tendency to appreciate.  Can you elaborate please?  And do western currencies share this trait?

I think most of the components of why THB appreciates are there in the first thread Probably the biggest one is that the economy comprises over 70% exports whereas imports are nearly always lower. That has a tendency to produce a trade and current account surplus which, combined with increasing Foreign Currency Reserves and low government debt, make THB strengthen.

 

Do other countries share this trait? I haven't really studied any but I'm not aware of any that are so heavily export dependent.

 

I was looking today at the 25 year XE exchange rate graphs for USD/THB and GBP/THB and was struck by the longer term strengthening of the Baht, taper tantrum and covid periods not withstanding. I think BOT is going to have a difficult job keeping it in a desirable range in the future and this may result in some structural changes in the Thai economy.

[nigelforbes]

And finally, back to that old question, how does expenditure by foreign tourists in Thailand, impact the value of the baht and is USD involved?

 

Tourism is a Services Export which is valued at about 12% of GDP or around USD 60 bill per year. Imported Services on the other hand were valued at USD 61 bill. in 2021, an offsetting amount. It therefore follows that if USD is deployed to convert tourist expenditure to THB, the opposite conversion will be deployed to pay for imported services.

 

Bottom line, there is no/very little impact.

[nigelforbes]

An authoritative and useful description of cross border settlement:

 

https://www.bankofengland.co.uk/payment-and-settlement/cross-border-payments

[nigelforbes]

Over 70% of Thailand’s economy is reliant on trade, which is a key factor in determining if the Baht will be weak or strong. Trade comprises Goods and Services, both of which are imported and exported. The difference between imports and exports is known as the balance of trade. When we import more than we export, the balance is negative and the cost to pay for that comes from the current account which, all other factors being equal, will be in deficit. When the opposite happens, the current account will be in surplus, all other factors being equal.

 

BOT produces two useful and interesting report showing the import and export of Goods, by month, by country and by product, for all of 2022, these are linked below. If you want to know anything about Thailand’s imports and exports, this is the definitive source of information, the horses mouth! I haven’t found a corresponding report for the import and export of Services which would complete the picture, but I will! International Tourism is of course an export of Services so all we need now is  to understand what Services are imported.

 

The import/export by country report makes interesting reading. From it we can see that in 2022, Thailand had a trade deficit in Goods of about USD 21 bill., this means it imported 21 bill. More than it exported. Remember though, the total import/export picture includes Services so the final picture will change. The report also tells us that overall trade with NAFTA (North America) was in surplus, we exported more to them than we imported, a key reason why the Fed. Keeps calling Thailand a currency manipulator! Exports to ASEAN countries was also in  surplus but trade with China was massively in deficit, we imported 50% more from China than we exported. Overall, Thailand has a  trading surplus with 47 of its trading partners and a trading deficit with 32, overall the deficit is about 7%. The reports are linked below:

 

BOT imports and exports by country

https://www.bot.or.th/App/BTWS_STAT/statistics/BOTWEBSTAT.aspx?reportID=743&language=ENG

 

BOT imports and exports by commodity group

https://www.bot.or.th/App/BTWS_STAT/statistics/BOTWEBSTAT.aspx?reportID=50&language=ENG

 

What you can see from these reports is that, without international tourism earnings, the economy cannot fully support itself on production and manufacturing alone, not if imports and all other factors are maintained at the current level. Tourism income is a key ingredient that helps balance the books and, once above a certain level, begins to produce a profit for the economy.

 

So, where does all of this leave us with the value of the Baht? I think it should be fairly clear that the difference in value between imports and exports is what mostly determines Baht strength or weakness and that comprises both Goods and Services. The real variable however is the USD exchange rate which influences the cost of imports, determines the value of exports and to a lesser degree, influences the appeal of Thailand as a tourist destination.

[nigelforbes]

Here's four charts from 2022 showing the relationship between the current account, the balance of trade, the USD/THB exchange rate and the number of tourist arrivals. You can see what happens to the Thai economy when the exchange rate is too weak and tourist numbers are too low.

 

https://tradingeconomics.com/thailand/current-account

https://tradingeconomics.com/thailand/balance-of-trade

https://tradingeconomics.com/thailand/tourist-arrivals

https://tradingeconomics.com/usdthb:cur

 

[nigelforbes]

Here's a mind bender for some:

 

If Thai people travel overseas and spend money in other countries, in economics this is regarded as a Thai import of (Tourist) Services, because the money flows from Thailand to another country but the travel experience returns to Thailand.

 

Conversely, when foreign tourists visit Thailand, this is regarded in economics as a Thai export of (Tourist) Services, because the funds used to pay for the holiday experience were brought in from overseas and then exported when the visitor returned home.

 

So, when it is said that the importation of Services has increased (which it has), that means (in part) that more people are travelling outbound.

 

[nigelforbes]

What happens to the value of the BAHT and the Thai economy in 2023 depends mostly on what happens to the economies of their trading partners. Over 85% of export shipments are manufactured goods and many of the buying countries are forecasting recession this year. Asia, however, is one of the bright spots on the forecast radar, the World Bank report on global growth was published last month and is linked below, it shows their estimates for growth, this year and next. 

 

https://www.worldbank.org/en/news/press-release/2023/01/10/global-economic-prospects

 

These are the products Thailand exports and their corresponding value in 2021: 

 

- Machinery including computers: US$44.7 billion (16.8% of total exports)
- Electrical machinery, equipment: $40 billion (15%)
- Vehicles: $31.7 billion (11.9%)
- Rubber, rubber articles: $19.7 billion (7.4%)
- Plastics, plastic articles: $15.5 billion (5.8%)
- Gems, precious metals: $9.9 billion (3.7%)
- Mineral fuels including oil: $9.6 billion (3.6%)
- Fruits, nuts: $6.2 billion (2.3%)
- Meat/seafood preparations: $6 billion (2.2%)
- Organic chemicals: $5.6 billion (2.1%)

 

BUT not all exports are created equally, some are more valuable than others because some generate trade surpluses as a result, others produce deficits but still remain valuable. The most valuable export for the country is, "Vehicles: US$21.5 billion (Up by 47.9% since 2020)", the second most valuable is, "Rubber, rubber articles: $16.4 billion (Up by 26.0%)". The following are the main exporting companies in Thailand:

 

- PTT Global Chemical (diversified chemicals)
- PTT PCL (energy)
- Siam Cement (specialized chemicals)
- Thai Beverage (beverages)
- Thai Oil (oil, gas)
- Total Access Communication (telecommunications)

 

Notice that so far, rice has not been mentioned yet many people think that's Thailand's main export!

 

If you want to understand more about this detail on exports, the following link explains it all:

 

https://www.worldstopexports.com/thailands-top-10-exports/

 

 

 

 

 

 

[nigelforbes]

This is the Private Consumption Indicator (PCI) index, compiled by BOT. It shows the value of items purchased by the public under 6 different headings, by month, for the entire year. It is regarded as a key economic indicator that shows the direction of the Thai economy although it is only one of the pieces of the jigsaw so don't rely on it exclusively. If you want to understand how well the Thai economy is doing every month, this is a good report to reference.

 

https://www.bot.or.th/App/BTWS_STAT/statistics/BOTWEBSTAT.aspx?reportID=827&language=ENG

[ExpatOilWorker]

3 hours ago, nigelforbes said:

What happens to the value of the BAHT and the Thai economy in 2023 depends mostly on what happens to the economies of their trading partners. Over 85% of export shipments are manufactured goods and many of the buying countries are forecasting recession this year. Asia, however, is one of the bright spots on the forecast radar, the World Bank report on global growth was published last month and is linked below, it shows their estimates for growth, this year and next. 

 

https://www.worldbank.org/en/news/press-release/2023/01/10/global-economic-prospects

 

These are the products Thailand exports and their corresponding value in 2021: 

 

- Machinery including computers: US$44.7 billion (16.8% of total exports)
- Electrical machinery, equipment: $40 billion (15%)
- Vehicles: $31.7 billion (11.9%)
- Rubber, rubber articles: $19.7 billion (7.4%)
- Plastics, plastic articles: $15.5 billion (5.8%)
- Gems, precious metals: $9.9 billion (3.7%)
- Mineral fuels including oil: $9.6 billion (3.6%)
- Fruits, nuts: $6.2 billion (2.3%)
- Meat/seafood preparations: $6 billion (2.2%)
- Organic chemicals: $5.6 billion (2.1%)

 

BUT not all exports are created equally, some are more valuable than others because some generate trade surpluses as a result, others produce deficits but still remain valuable. The most valuable export for the country is, "Vehicles: US$21.5 billion (Up by 47.9% since 2020)", the second most valuable is, "Rubber, rubber articles: $16.4 billion (Up by 26.0%)". The following are the main exporting companies in Thailand:

 

- PTT Global Chemical (diversified chemicals)
- PTT PCL (energy)
- Siam Cement (specialized chemicals)
- Thai Beverage (beverages)
- Thai Oil (oil, gas)
- Total Access Communication (telecommunications)

 

Notice that so far, rice has not been mentioned yet many people think that's Thailand's main export!

 

If you want to understand more about this detail on exports, the following link explains it all:

 

https://www.worldstopexports.com/thailands-top-10-exports/

 

 

 

 

 

 

Good info. 

Can you explain why they compare the export value in nominal $ to the GDP in PPP $?

Seems like an apple to Orange kind of comparison. 

 

In macroeconomic terms, Thailand’s total exported goods represent 20% of its overall Gross Domestic Product for 2021 ($1.331 trillion valued in Purchasing Power Parity US dollars). That 20% for exports to overall GDP per PPP in 2021 compares to 18.2% for 2020.

[nigelforbes]

4 minutes ago, ExpatOilWorker said:

Good info. 

Can you explain why they compare the export value in nominal $ to the GDP in PPP $?

Seems like an apple to Orange kind of comparison. 

 

In macroeconomic terms, Thailand’s total exported goods represent 20% of its overall Gross Domestic Product for 2021 ($1.331 trillion valued in Purchasing Power Parity US dollars). That 20% for exports to overall GDP per PPP in 2021 compares to 18.2% for 2020.

Er, no, not really, and I can't even begin to guess, sorry.

 

But on other fronts, I thought the finding that Imported Services offset exported Services was a result worth knowing. Whilst if doesn't fully answer the international settlement issue it does answer the foreign currency issue....I think.

[wordchild]

https://www.ft.com/content/f280de11-48c7-4526-aa92-ad1e1b7b6ed1

Interesting article in todays Financial Times.

Its headed "The Untold Story of the Worlds Strongest Currency" and its about the Thai Baht!

I am not sure if its behind their paywall, but the gist of the article is that vs the USD  since the Asian financial crisis , only the Swiss Franc (of all the worlds major currencies)  has performed better than the Baht.

The author then gives his views as to why that has been the case. Personally i would take issue with some of what he says but its worth a read.

[nigelforbes]

1 hour ago, wordchild said:

https://www.ft.com/content/f280de11-48c7-4526-aa92-ad1e1b7b6ed1

Interesting article in todays Financial Times.

Its headed "The Untold Story of the Worlds Strongest Currency" and its about the Thai Baht!

I am not sure if its behind their paywall, but the gist of the article is that vs the USD  since the Asian financial crisis , only the Swiss Franc (of all the worlds major currencies)  has performed better than the Baht.

The author then gives his views as to why that has been the case. Personally i would take issue with some of what he says but its worth a read.

Thanks for posting this. I read it twice and have to agree with one person in the comments section, "it reads like a puff piece". I was busy reading the praise and  overlooking the authors exuberance because I was waiting for an all mighty "but" that never  came, it's good to see positive articles, especially in the FT but this one seems very one sided, dare I say it needs some negative factors to achieve balance. Oh, and since he talked extensively about Baht strength and was going to be read by the worlds financial community, did you notice how many times he talked about currency manipulation? Not once!

[ballpoint]

9 hours ago, ExpatOilWorker said:

Good info. 

Can you explain why they compare the export value in nominal $ to the GDP in PPP $?

Seems like an apple to Orange kind of comparison. 

 

In macroeconomic terms, Thailand’s total exported goods represent 20% of its overall Gross Domestic Product for 2021 ($1.331 trillion valued in Purchasing Power Parity US dollars). That 20% for exports to overall GDP per PPP in 2021 compares to 18.2% for 2020.

GDP per PPP gives the "Gross domestic product (GDP) in purchasing power standards", which creates a level playing field between countries in terms of how much money they generate and the price of what they buy for it.  For example, a country with a medium level GDP, but where prices are low may have an equal, or even higher GDP per PPP than a high GDP country where prices are expensive.  The next step is GDP per capita PPP, which further divides it by the population to show the true purchasing power GDP of each citizen.

 

 

The effects of the 1997 "Asian crisis", the 2008 GFC and covid are clearly seen.

 

 

Despite what many doomsayers were telling us about the Thai economy, Thailand was showing rather rapid growth up till covid hit, but looks to be improving again, with the forecasted data in the blue shaded region:

Thailand GDP per capita PPP - 2022 Data - 2023 Forecast - 1990-2021 Historical - Chart (tradingeconomics.com)

 

And an explanation of the PPP calculation is shown here:

PPP Calculation and Estimation (worldbank.org)