Baht's Strength Is Not What It Seems

[george]

EDITORIAL

Baht's strength is not what it seems

By The Nation

The Bank of Thailand needs to revamp its foreign exchange management strategy, or it could be in for a big shock

The Bank of Thailand is now facing a dilemma over how to manage the surging baht. It has been intervening frantically in the foreign exchange market to keep the baht from rising too fast and too soon. It is afraid that a strong baht will hurt exports. But the BOT is swimming against the tide of capital inflow and the current account surplus. Since the beginning of this year, the baht has risen 4.2 per cent to around Bt33.22 to the US dollar. If the trend continues, the baht could easily hit Bt32 to the dollar before the end of the year.

Actually, the baht is not getting stronger. It is the US dollar that is plunging on a downward adjustment. We only have to take a look at gold prices, which are reaching new record highs. Now, gold is trading at around $1,069 (Bt35,760) per ounce.

Investors are also leaving the financial markets and currencies and embracing hard assets instead. Confidence in the US economy and financial system is waning fast. For the US has not tackled the insolvency of its financial system. It has also continued to run a high deficit. Most important, the Federal Reserve will keep printing the dollar to meet debt obligations. Printing money will debase the value of the dollar. It will also threaten to create hyper-inflation in the future.

As of October 2, Thailand's international reserves (net forward position included) stood at $146.9 billion, an increase of 25 per cent ($28.9bn) from the beginning of 2009. The tide of capital inflow became noticeably significant from May, when international reserves surged by $19.3 billion or an average of $4.8 billion per month through to August. The trend did not slow in September. International reserves shot up $7 billion due largely to the BOT intervention via purchasing US dollarS.

By purchasing the dollar, the BOT pumps the baht into the system. Fearing that the baht might flood the financial system, it has to issue bonds to absorb the baht out. Between May and August, the BOT issued bonds totalling Bt24 billion ($700 million) or 3.6 per cent of US dollars purchased ($19.3bn). We would highlight that in September alone, the BOT issued bonds worth Bt135.8 billion ($4 billion) or 57.1 per cent of US dollars purchased ($7 billion). At the end of September, the outstanding BOT bonds stood at a high of Bt1.58 trillion versus Bt1.44 trillion in August.

There will be more capital inflow because investors around the world are shifting their funds to Asia, where growth prospects are brighter. This has created sleepless nights for BOT Governor Tarisa Watanagase. She said the authorities would closely monitor capital movements and denied that they would resort to measures to stem the inflow.

But since the BOT has been actively intervening to buy up the dollar, it is standing to lose money because the baht keeps on rising. When the total dollar reserves are booked in baht accounts, the BOT will post a big accounting loss. If the BOT loses money, it will create a loss of confidence. The BOT needs a revamp of its foreign exchange operation as the dollar value from its reserves keep on declining. If it does not manage the transition well, it will put the country's macro-economic stability at great risk.

-- The Nation 2009-10-15

[pkrv]

I am going to be very naughty here. Quite frankly I think Thailand and indeed all other countries should be spending their own currency with other countries.

THB is strong IMO they should have the option of buying oil in THB NOT USD.

Where is this imaginary FREE MARKET?

If I were these guys I would work with other nations towards this goal.

No US bashing just asking for what the US stands for, is that not a free market?

[chiang mai]

Alert Alert, two minute warning, incoming! PKRV, whatever were you thinking of!

[gotlost]

I got news for the OP on 09/10/09 the Baht was at 32.95 today at close 33.14.

[britmaveric]

More than likely BOT will peg at some point if baht gets too strong.

[chiang mai]

Let me read your mind, you're thinking in terms of thirty, the rest is unclear, but wait I see it now, thirty six perhaps? Hmm.

[britmaveric]

34-35 range is normally what BOT likes.

[pkrv]

Alert Alert, two minute warning, incoming! PKRV, whatever were you thinking of!

[hustlehouse]

Are there more of this coming? I'm gonna have a break now......... this guys are a joke indeed

[hustlehouse]

Not talking about you guys here, talking about the other ones releasing this press releases. Good luck.......

[mommysboy]

EDITORIAL

Baht's strength is not what it seems

By The Nation

The Bank of Thailand needs to revamp its foreign exchange management strategy, or it could be in for a big shock

The Bank of Thailand is now facing a dilemma over how to manage the surging baht. It has been intervening frantically in the foreign exchange market to keep the baht from rising too fast and too soon. It is afraid that a strong baht will hurt exports. But the BOT is swimming against the tide of capital inflow and the current account surplus. Since the beginning of this year, the baht has risen 4.2 per cent to around Bt33.22 to the US dollar. If the trend continues, the baht could easily hit Bt32 to the dollar before the end of the year.

Actually, the baht is not getting stronger. It is the US dollar that is plunging on a downward adjustment. We only have to take a look at gold prices, which are reaching new record highs. Now, gold is trading at around $1,069 (Bt35,760) per ounce.

Investors are also leaving the financial markets and currencies and embracing hard assets instead. Confidence in the US economy and financial system is waning fast. For the US has not tackled the insolvency of its financial system. It has also continued to run a high deficit. Most important, the Federal Reserve will keep printing the dollar to meet debt obligations. Printing money will debase the value of the dollar. It will also threaten to create hyper-inflation in the future.

As of October 2, Thailand's international reserves (net forward position included) stood at $146.9 billion, an increase of 25 per cent ($28.9bn) from the beginning of 2009. The tide of capital inflow became noticeably significant from May, when international reserves surged by $19.3 billion or an average of $4.8 billion per month through to August. The trend did not slow in September. International reserves shot up $7 billion due largely to the BOT intervention via purchasing US dollarS.

By purchasing the dollar, the BOT pumps the baht into the system. Fearing that the baht might flood the financial system, it has to issue bonds to absorb the baht out. Between May and August, the BOT issued bonds totalling Bt24 billion ($700 million) or 3.6 per cent of US dollars purchased ($19.3bn). We would highlight that in September alone, the BOT issued bonds worth Bt135.8 billion ($4 billion) or 57.1 per cent of US dollars purchased ($7 billion). At the end of September, the outstanding BOT bonds stood at a high of Bt1.58 trillion versus Bt1.44 trillion in August.

There will be more capital inflow because investors around the world are shifting their funds to Asia, where growth prospects are brighter. This has created sleepless nights for BOT Governor Tarisa Watanagase. She said the authorities would closely monitor capital movements and denied that they would resort to measures to stem the inflow.

But since the BOT has been actively intervening to buy up the dollar, it is standing to lose money because the baht keeps on rising. When the total dollar reserves are booked in baht accounts, the BOT will post a big accounting loss. If the BOT loses money, it will create a loss of confidence. The BOT needs a revamp of its foreign exchange operation as the dollar value from its reserves keep on declining. If it does not manage the transition well, it will put the country's macro-economic stability at great risk.

-- The Nation 2009-10-15

No judging by the theme of the article, the baht seems to be undervalued !!!

One can't argue with genuine market forces, there is a huge capital inflow in to the bt, so it's worth what it is! end of story. I don't see that it can be held down!

One shudders to think what effect this will have on exports (of which Thai GDP comprises 70%), but bring it on I say! What's the point of massaging the figures?

[britmaveric]

As I said just peg it and be done with it. This is what they want to do anyways.

[mommysboy]

As I said just peg it and be done with it. This is what they want to do anyways.

Sure, but pegging whether artificially high or low won't work, so let's have 30 to the dollar. After all this Asian Tiger is strong enough isn't it?

[britmaveric]

Think 40 would be much better than 30!

[mommysboy]

Think 40 would be much better than 30!

I thnk 40, 50, or 60, or 100n would be better, of course, but if 'reality' points to 30 that's that! And of course we are talking about a powerhouse, highly competitive economy, not dependent on dollar exports aren't we? Err well, enjoy now methinks....

[britmaveric]

Don't count out the Yank $ - it normally surprises when you least expect it. So enjoy the future gains for the yank dollar....

[flying]

Don't count out the Yank $ - it normally surprises when you least expect it. So enjoy the future gains for the yank dollar....

[chiang mai]

"GDP - composition by sector: agriculture: 11.6%, industry: 45.1%, services: 43.3% (2008 est.)"

" were it not for the fact that the poster produces some of the most biased postings on the Thai/UK comparison threads".

70% eh! And you were saying about being biased!!

[ericthai]

Think 40 would be much better than 30!

I thnk 40, 50, or 60, or 100n would be better, of course, but if 'reality' points to 30 that's that! And of course we are talking about a powerhouse, highly competitive economy, not dependent on dollar exports aren't we? Err well, enjoy now methinks....

I agree 40,50 etc but the only problem Thai's then increase the price of everything happened when the baht went from 25 up to 40 back in 97, it was like overnight bar fines went up from 150 to 250, we know there was no real increase for the cost..he he hotel prices went up too. but I do like when it is at 40, easy math!! and good for the pocket

[ericthai]

EDITORIAL

Baht's strength is not what it seems

By The Nation

The Bank of Thailand needs to revamp its foreign exchange management strategy, or it could be in for a big shock

The Bank of Thailand is now facing a dilemma over how to manage the surging baht. It has been intervening frantically in the foreign exchange market to keep the baht from rising too fast and too soon. It is afraid that a strong baht will hurt exports. But the BOT is swimming against the tide of capital inflow and the current account surplus. Since the beginning of this year, the baht has risen 4.2 per cent to around Bt33.22 to the US dollar. If the trend continues, the baht could easily hit Bt32 to the dollar before the end of the year.

Actually, the baht is not getting stronger. It is the US dollar that is plunging on a downward adjustment. We only have to take a look at gold prices, which are reaching new record highs. Now, gold is trading at around $1,069 (Bt35,760) per ounce.

Investors are also leaving the financial markets and currencies and embracing hard assets instead. Confidence in the US economy and financial system is waning fast. For the US has not tackled the insolvency of its financial system. It has also continued to run a high deficit. Most important, the Federal Reserve will keep printing the dollar to meet debt obligations. Printing money will debase the value of the dollar. It will also threaten to create hyper-inflation in the future.

As of October 2, Thailand's international reserves (net forward position included) stood at $146.9 billion, an increase of 25 per cent ($28.9bn) from the beginning of 2009. The tide of capital inflow became noticeably significant from May, when international reserves surged by $19.3 billion or an average of $4.8 billion per month through to August. The trend did not slow in September. International reserves shot up $7 billion due largely to the BOT intervention via purchasing US dollarS.

By purchasing the dollar, the BOT pumps the baht into the system. Fearing that the baht might flood the financial system, it has to issue bonds to absorb the baht out. Between May and August, the BOT issued bonds totalling Bt24 billion ($700 million) or 3.6 per cent of US dollars purchased ($19.3bn). We would highlight that in September alone, the BOT issued bonds worth Bt135.8 billion ($4 billion) or 57.1 per cent of US dollars purchased ($7 billion). At the end of September, the outstanding BOT bonds stood at a high of Bt1.58 trillion versus Bt1.44 trillion in August.

There will be more capital inflow because investors around the world are shifting their funds to Asia, where growth prospects are brighter. This has created sleepless nights for BOT Governor Tarisa Watanagase. She said the authorities would closely monitor capital movements and denied that they would resort to measures to stem the inflow.

But since the BOT has been actively intervening to buy up the dollar, it is standing to lose money because the baht keeps on rising. When the total dollar reserves are booked in baht accounts, the BOT will post a big accounting loss. If the BOT loses money, it will create a loss of confidence. The BOT needs a revamp of its foreign exchange operation as the dollar value from its reserves keep on declining. If it does not manage the transition well, it will put the country's macro-economic stability at great risk.

-- The Nation 2009-10-15

im not expert in this stuff but...I believe the US dollar is going to get stronger, the US stock market just hit the 10,000 mark for the second day in a row, the highest it has been in the last year. The US dollar gained against the Yen however fell against the Euro. Some auto makers in the US are bringing people back to work as sales have increased, things are starting to show signs of improvement and the US dollar should increase a little by the end of the year against the Euro, nothing enough to see high 30's against the baht but should see close to mid 30's. But again this is Thailand and anything can happen

[neverdie]

Don't count out the Yank $ - it normally surprises when you least expect it. So enjoy the future gains for the yank dollar....

it would depend on how far into the distant future you are looking britmaveric or what exactly are you stating the US PAESO will gain against?

[sokal]

As I said just peg it and be done with it. This is what they want to do anyways.

They cant peg, do you know how much that would cost ??

[sokal]

Don't count out the Yank $ - it normally surprises when you least expect it. So enjoy the future gains for the yank dollar....

Same thing some British windbags must have been saying about the Pound Sterling just before it lost reserve currency status......

[phutoie2]

How do you know??. were you around at the time?

Edited October 15, 2009 by phutoie2

[Jockey]

Read on Bloomberg the baht is declining due to the King's continued ill health.

[Gary A]

The latest Big Mac index;

Thailand $ 1.92

US $ 3.57

Britain $ 3.70

Australia $ 3.99

[T_Dog]

The latest Big Mac index;

Thailand $ 1.92

US $ 3.57

Britain $ 3.70

Australia $ 3.99

Finally, a financial post I can sink my teeth into!

[cocopops]

I am going to be very naughty here. Quite frankly I think Thailand and indeed all other countries should be spending their own currency with other countries.

THB is strong IMO they should have the option of buying oil in THB NOT USD.

Why would they give a rats? The Thai chappy buys dollars with his baht, then

oil with his dollars. If the oil salesman wants baht, he buys it with the dollars.

Doesn't matter if it's priced in dollars, gold, wheat or any other fungible and

liquid commodity. Printing the price on Bloomberg in Baht instead of USD

would achieve exactly what?

[flying]

Printing the price on Bloomberg in Baht instead of USD

would achieve exactly what?

Same as using any other currency.........less demand for dollars

[MiG16]

^ hasnt Russia been trying to do that for some years now?

move away from USD to gold for oil?