How Does it Work?

[nigelforbes]

As part of a debate with a chum elsewhere, I am trying to understand a particular economic scenario but nobody seems to be 100% certain of their answer, I'm sure that somewhere out there one of you do know. Here's the scenario:

 

When an overseas tourist visits Thailand and pays for something electronically, either a cash withdrawal from their home bank at an ATM or a purchase using an overseas credit card, how do those transactions increase the BOT Foreign Currency Reserves? Does anyone understand international settlements in sufficient detail to know the answer?

 

One possible answer is that cash withdrawal and purchases from merchants are treated slightly differently. Another possible answer is that credit card networks such as visa play a significant role, yet another is that the BIS manages the process via the central banks.

 

No WAG's please and no plausible guesses based only on logic, if you don't know, you don't know.

 

TIA

 

[Dan O]

Sources of Official Foreign Reserves

1. Balance of payment Surplus: The Balance of Payments consists of the current account and the capital account. Under the managed floating exchange rate, surpluses will lead to increases in foreign exchange holdings when the central bank intervenes by buying the foreign currency.

2. Returns from management of official reserves: Returns from interest payments and the change in principal values of assets 

[A1Str8]

Irrespective of the payment method the foreign currency is deposited into local bank account when the tourists pay which is then transferred to central banks. It's always strictly the central bank that deals with these things since we're talking massive amounts. Thailand e.g has a reserve of about 200 billion usd. 

But it's really Thailand's exporters and their foreign currency based business that keep those reserves fat and steady. That's where the big money is. Tourists are nothing compared to that. 

[nigelforbes]

2 minutes ago, Dan O said:

Sources of Official Foreign Reserves

1. Balance of payment Surplus: The Balance of Payments consists of the current account and the capital account. Under the managed floating exchange rate, surpluses will lead to increases in foreign exchange holdings when the central bank intervenes by buying the foreign currency.

2. Returns from management of official reserves: Returns from interest payments and the change in principal values of assets 

Yes thanks, we know about that level, what we are less clear about is the lowest level of detail. For example, Fernando lives in Mexico, he banks with Banko Banko in Tijuana. Fernando travels to Thailand for a weeks holiday, he visits a Bank Thai ATM and withdraws 5k baht from his Banko Banko account which is authorised and he's paid. That means Bank Banko now owes Bank Thai the equivalent of 5k baht, how does that money get paid? Bank Thai doesn't want Peso's from Banko Banko, at least I don't think they do, but they would take USD which Bank Thai then must sell to the BOT. If that's the answer, that means all cash withdrawals from foreign accounts are converted to USD offshore Thailand for settlement, presumably at Central Banks and BIS (?) which seems just not quite right.

[nigelforbes]

1 minute ago, A1Str8 said:

Irrespective of the payment method the foreign currency is deposited into local bank account when the tourists pay which is then transferred to central banks. It's always strictly the central bank that deals with these things since we're talking massive amounts. Thailand e.g has a reserve of about 200 billion usd. 

But it's really Thailand's exporters and their foreign currency based business that keep those reserves fat and steady. That's where the big money is. Tourists are nothing compared to that. 

Yes, absolutely agreed. The banks in Thailand are agents of BOT so they enforce policy, BOT is merely the settlement agent, the external interface and the holder of foreign currencies (actually BIS holds them but that';s good enough for here)..

[FritsSikkink]

Your petty cash withdrawals have no influence whatsoever on Currency fluctuations.

[nigelforbes]

11 minutes ago, FritsSikkink said:

Your petty cash withdrawals have no influence whatsoever on Currency fluctuations.

Please go back and read the first post again, you have not understood the purpose of the thread or the question being asked.

Edited February 5, 2023 by nigelforbes
spelling

[Rimmer]

Off topic bickering baiting posts removed

[VocalNeal]

2 hours ago, nigelforbes said:

you have not understood the purpose of the thread

You've got that correct???? But then again I am not studying economics as a hobby.

[nigelforbes]

36 minutes ago, VocalNeal said:

You've got that correct???? But then again I am not studying economics as a hobby.

Sorry if you think it's an unduly difficult or complex question, one possible answer might be, "I don't know" and to move on or to even read something else! The question again, is:

 

"When an overseas tourist visits Thailand and pays for something electronically, either a cash withdrawal from their home bank at an ATM or a purchase using an overseas credit or debit card, how do those transactions increase the BOT Foreign Currency Reserves?"

 

I mean, we're told repeatedly that foreign tourism is important to the Thai economy and to the Foreign Currency Reserves. Even though it's accepted that the influence on those reserves is only minor, compared to other influences such as exports and FDI, I want to try and understand how that works. The vast majority of Exports are paid for in USD, which is then sold for Baht, so that's easy to see how the Baht strengthens as a result. But foreign tourist spending? And before anyone asks, yes it does, even Chartchai in his most recent Post column confirmed that it does. If anyone does understand this, it will  be interesting to know.

 

[VocalNeal]

So the question is. Are foreign credit card transactions Visa/Mastercard/UnionPay. handled by the BOT or retail banks. ????

In the same way as banks consider a loan an asset? 

 

Don't know. But I see where the logic, true or false, is going.

Edited February 5, 2023 by VocalNeal

[1FinickyOne]

They have computers... 

 

I don't know what a WAG is, so my answer might violate your rules... 

[nigelforbes]

41 minutes ago, 1FinickyOne said:

They have computers... 

 

I don't know what a WAG is, so my answer might violate your rules... 

WAG = wild ar se guess. ????

[nigelforbes]

55 minutes ago, VocalNeal said:

So the question is. Are foreign credit card transactions Visa/Mastercard/UnionPay. handled by the BOT or retail banks. ????

In the same way as banks consider a loan an asset? 

 

Don't know. But I see where the logic, true or false, is going.

Hmm, no, I wasn't going down that road. This is purely about foreign currency accumulation, not banks asset management or liabilities.

 

I think the debits and credit from these transactions may pyramid upwards to the Central Bank in each country and then on to the BIS where they are finally settled. BIS holds the Foreign currency reserves of each (most) country and those reserves are held in various currencies. It is a simple matter to debit and credit amounts by currency at the BIS hence no physical currency is involved, only accounted for by the central banks. 

[1FinickyOne]

1 hour ago, nigelforbes said:

WAG = wild ar se guess. ????

And what % of the population might know that? 

 

 

[nigelforbes]

13 minutes ago, 1FinickyOne said:

And what % of the population might know that? 

 

 

It's a very very common Americanism that has spread far and wide and been in use since the 1980's:

 

https://en.wikipedia.org/wiki/Scientific_wild-ass_guess

[Neeranam]

10 hours ago, nigelforbes said:

No WAG's please and no plausible guesses based only on logic, if you don't know, you don't know.

I have a pretty good idea but not 100% sure, am I allowed to reply lol?

[nigelforbes]

Just now, Neeranam said:

I have a pretty good idea but not 100% sure, am I allowed to reply lol?

Go for it. :))

[VocalNeal]

1 hour ago, 1FinickyOne said:

And what % of the population might know that? 

 

 

Another example of two countries separated by a common language. 

 

WAG = wives and girlfriends. There are no wild donkeys in UK.

Edited February 5, 2023 by VocalNeal

[nigelforbes]

1 minute ago, VocalNeal said:

Another example of two countries separated by a common language. 

 

WAG = wives and girlfriends. There are no wild donkeys in UK.

FWIW I'm a Brit.