Baht's Strength Is Not What It Seems

[sokal]

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?

Think about it. All oil deals have to be settled in dollars which soaks up dollars and gives dollars value.

[cyb]

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?

I think what PKRV is trying to say is that, The dollor is losing against the baht. So if thailand paid for oil in baht at this moment in time oil would in reality be cheaper for thailand.

Nice thought but does not work out that way.

[Naam]

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!

those who believe in the Big Mac Index believe in the tooth fairy too.

[loong]

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

In early March

Dow Jones was at its low of 6517, now 10,000 an increase of 53%

Euro - US$ was 1.25, now about 1.49, so US$ has weakened about 19% against the Euro in the same period.

US$ - Yen was around 98, now 91, so US$ has weakened about 7% against the Yen in the same period.

GBP - US$ was about 1.39, now 1.63, so US$ has weakened about 17% against the Pound in the same period.

As you can see, as the stock index rises, the US$ loses value. This is not a correllation set in stone, but has been the norm for most of this year. It does follow that if the stock markets continue to rise, the $ will likely weaken further.

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?

Think about it. All oil deals have to be settled in dollars which soaks up dollars and gives dollars value.

It really doesn't matter what currency is used to purchase oil or any other commodity.

If Thailand purchases oil in Thai Baht, are the recipients likely to keep it in Thai Baht - I very much doubt it.

Example - If Thailand buys commodities from Australia and pays for them in US$. If Australia then keeps this income as US$ it will act to strengthen the US$. If, however, Australia then converts this to AU$ it will have no net effect on the US$ except liquidity and to a small extent volatility. Thailand buys US$ and the Australia sells US$, the 2 transactions effectively cancel each other out.

Edited October 17, 2009 by loong

[meom]

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?

Not sure about 2009 but for 2007 Thai net import of oil was about 600,000 barrels/day.

Using the same figure for 2009 and let’s say a price of $75/barrel the total dollar value of 2009 imports would be approx. 16.5 billion.

With international reserves of $146.9 billion the impact of paying $16.5 billion worth of oil in baht would seem quite insignificant to me.

Or am I missing something here?

[chiang mai]

I think the idea is to have a single (Neutral) exchange currency that doesn't benefit all buyers or the seller in every transaction.

[sokal]

It really doesn't matter what currency is used to purchase oil or any other commodity.

If Thailand purchases oil in Thai Baht, are the recipients likely to keep it in Thai Baht - I very much doubt it.

Example - If Thailand buys commodities from Australia and pays for them in US$. If Australia then keeps this income as US$ it will act to strengthen the US$. If, however, Australia then converts this to AU$ it will have no net effect on the US$ except liquidity and to a small extent volatility. Thailand buys US$ and the Australia sells US$, the 2 transactions effectively cancel each other out.

Yes it does matter. All of those US dollars would not have to be purchased and they would all come back to the US, it would be very inflationary for the US.

The recipients would just convert the bht into their own currency. Argentina and China already have a currency swap deal in place. They are preparing for a world without the USD as the reserve currency.

China, Argentina agree to currency swap

[cocopops]

I think the idea is to have a single (Neutral) exchange currency that doesn't benefit all buyers or the seller in every transaction.

Currencies are freely convertible and transaction costs are negligible. Why is it that using USD to do the accounting for oil transactions is supposed to be inflating its value?

Edited October 17, 2009 by cocopops

[flying]

Currencies are freely convertible and transaction costs are negligible. Why is it that using USD to do the accounting for oil transactions is supposed to be inflating its value?

If you could use your computer to make paper currency.... Say it cost you 3 cents to make a paper note. But the note has a trade value of 1,10 or even a hundred dollars each. Would you not benefit if the world HAD to use it to buy their oil?

Petrodollar Warfare

The Curse of Seigniorage.

Seigniorage

[cocopops]

Currencies are freely convertible and transaction costs are negligible. Why is it that using USD to do the accounting for oil transactions is supposed to be inflating its value?

If you could use your computer to make paper currency.... Say it cost you 3 cents to make a paper note. But the note has a trade value of 1,10 or even a hundred dollars each. Would you not benefit if the world HAD to use it to buy their oil?

Petrodollar Warfare

The Curse of Seigniorage.

Seigniorage

Of course not. I would benefit (in the form of an interest free loan) if some party agreed to hold my Cocodollars for some amount of time. But not if they were simply pricing their oil in $C. If some bloke comes along, buys my $C for Baht, then 30 seconds later somebody else sells them back to me for yen, exactly what have I gained?

If folks choose to buy my $C so that they can stash them away for next year, good luck to them. Clearly they see me as a trustworthy individual unlikely to expire soon who will be providing a market in which to unload their $C at some point in the future. Nothing to do with oil.

[loong]

It really doesn't matter what currency is used to purchase oil or any other commodity.

If Thailand purchases oil in Thai Baht, are the recipients likely to keep it in Thai Baht - I very much doubt it.

Example - If Thailand buys commodities from Australia and pays for them in US$. If Australia then keeps this income as US$ it will act to strengthen the US$. If, however, Australia then converts this to AU$ it will have no net effect on the US$ except liquidity and to a small extent volatility. Thailand buys US$ and the Australia sells US$, the 2 transactions effectively cancel each other out.

Yes it does matter. All of those US dollars would not have to be purchased and they would all come back to the US, it would be very inflationary for the US.

The recipients would just convert the bht into their own currency. Argentina and China already have a currency swap deal in place. They are preparing for a world without the USD as the reserve currency.

China, Argentina agree to currency swap

"The recipients would just convert the bht into their own currency."

And who will buy the Baht?

In my example above, the US$ are exchanged for AU$, so eventually would return to the USA.

The US$ is relatively strong because of its status as the main reserve currency. The fact that it is the main currency for international commodity trades does allow the USA to import goods without paying for them.

I don't pretend to have anywhere near a full understanding of how the global currency exchange markets work.

But, putting it simply..

Usa imports good from China and pays for them with $, $ are effectively IOUs issued by the USA. China builds up huge $ currency reserves. Actually, China is lending the USA the money to buy Chinese goods. So the USA is buying Chinese goods on permanently extending credit with absolutely no intention or the means to ever settle this debt.

It's a catch 22 situation, the world cannot just drop the $ as its main reserve and trading currency. If it did, the $ would be basically worthless, therefore Countries like China (and Thailand) would be holding worthless $ reserves. At the same time steps have to be taken to change things as eventually the whole system will collapse. It will have to be done slowly though.

[loong]

Currencies are freely convertible and transaction costs are negligible. Why is it that using USD to do the accounting for oil transactions is supposed to be inflating its value?

If you could use your computer to make paper currency.... Say it cost you 3 cents to make a paper note. But the note has a trade value of 1,10 or even a hundred dollars each. Would you not benefit if the world HAD to use it to buy their oil?

Petrodollar Warfare

The Curse of Seigniorage.

Seigniorage

Of course not. I would benefit (in the form of an interest free loan) if some party agreed to hold my Cocodollars for some amount of time. But not if they were simply pricing their oil in $C. If some bloke comes along, buys my $C for Baht, then 30 seconds later somebody else sells them back to me for yen, exactly what have I gained?

If folks choose to buy my $C so that they can stash them away for next year, good luck to them. Clearly they see me as a trustworthy individual unlikely to expire soon who will be providing a market in which to unload their $C at some point in the future. Nothing to do with oil.

You make the point better than I did

I totally agree with you.

[flying]

Of course not. I would benefit (in the form of an interest free loan) if some party agreed to hold my Cocodollars for some amount of time. But not if they were simply pricing their oil in $C. If some bloke comes along, buys my $C for Baht, then 30 seconds later somebody else sells them back to me for yen, exactly what have I gained?

If folks choose to buy my $C so that they can stash them away for next year, good luck to them. Clearly they see me as a trustworthy individual unlikely to expire soon who will be providing a market in which to unload their $C at some point in the future. Nothing to do with oil.

That is where we disagree

They do not redeem them nor do you buy them back.

The forced circulation alone is worth something.

What makes you think when you return them they are worth the same as when they were distributed? What if since you got yours they printed a few trillion more? Did that dilute their worth? Of course it did.

Clearly the world no longer see's the USD as 100% trustworthy

Edited October 17, 2009 by flying

[cocopops]

Of course not. I would benefit (in the form of an interest free loan) if some party agreed to hold my Cocodollars for some amount of time. But not if they were simply pricing their oil in $C. If some bloke comes along, buys my $C for Baht, then 30 seconds later somebody else sells them back to me for yen, exactly what have I gained?

If folks choose to buy my $C so that they can stash them away for next year, good luck to them. Clearly they see me as a trustworthy individual unlikely to expire soon who will be providing a market in which to unload their $C at some point in the future. Nothing to do with oil.

That is where we disagree

They do not redeem them nor do you buy them back.

The forced circulation alone is worth something.

What makes you think when you return them they are worth the same as when they were distributed? What if since you got yours they printed a few trillion more? Did that dilute their worth? Of course it did.

What, in the thirty seconds that the transaction takes to complete? Ridiculous. Cocoland would never do that! And even if it would, what's to stop the tricky Thai and Jap from showing up at the counter and asking for Bht/$C, Yen/$C rates at the same time, giving us no opportunity to run our computer to inflate the $C?

It makes absolutely no difference to anybody what currency oil is priced in.

[flying]

It makes absolutely no difference to anybody what currency oil is priced in.

Yes it matters mak mak to the USD & we may get to witness the loss of that effect in our lifetime.

Edited October 17, 2009 by flying

[mommysboy]

Err - right - ah yes the Thai Baht that was the subject as I remember....

Really you can't argue that the price is anything but right, that's where 'the smart' money is heading and that's why the currency has enjoyed further strength-simple supply and demand.

Did anyone ever read the 'Emperor's new robes', by the way?

[badge]

The THB will move inline with its peers; it outperforms some, underperforms others.

Markets make the necessary price adjustments, and if you disagree you should position your finances to benefit from your perceived mispricing. If your views are correct, the market will eventually make the necessary adjustments.

Central Bank tinkering will do little, and more than likely attract attention from people with more sophistication and larger leverage to squeeze them. I would suggest the BoT have 'managed' the currency for many years to try and avoid anything like 97 again, to give it a smoothed appearence of stability. They managed its decline in 07-08, now theyre managing its ascent. If they cant handle it they should allow it to move freely, like KRW or IDR.

[Time Traveller]

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

I can guarantee that will never happen again in Thailand. The last time they did that it was a disaster, and the paradigm for fixed exchange rates is wrongly based on the assumption that economies are not dynamic and that some Econostrologer knows what the fair value of an exchange rate actually is. Some dreams and hopes may come true, but hoping for a fixed exchange rate is futile.

[Abrak]

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

I can guarantee that will never happen again in Thailand. The last time they did that it was a disaster, and the paradigm for fixed exchange rates is wrongly based on the assumption that economies are not dynamic and that some Econostrologer knows what the fair value of an exchange rate actually is. Some dreams and hopes may come true, but hoping for a fixed exchange rate is futile.

Absolutely, it is known as the - 'impossible triangle' - you lose control of the third variable by controlling the first two, It is not a paradigm.

[chiang mai]

And here's what Ben B had to say on the subject:

"He said many Asian economies had learnt a “problematic” lesson from the 1997 Asian crisis that it was desirable to rely on export-led growth while building up large amounts of reserves to insure against a sudden reversal in capital flows.

But he said he saw reserve accumulation as a “by-product” of growth strategies rather than the reason for which economies ran trade surpluses. Mr Bernanke suggested that if of growth in emerging nations could shift towards domestic demand the reserve issue would not be as great a problem".

[cocopops]

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

I can guarantee that will never happen again in Thailand. The last time they did that it was a disaster, and the paradigm for fixed exchange rates is wrongly based on the assumption that economies are not dynamic and that some Econostrologer knows what the fair value of an exchange rate actually is. Some dreams and hopes may come true, but hoping for a fixed exchange rate is futile.

Absolutely, it is known as the - 'impossible triangle' - you lose control of the third variable by controlling the first two, It is not a paradigm.

But it works Ok in Hong Kong.

[Farang0tang]

Confused? I will be.

(Note to Amazon.com - Must cancel that ForEx dealing for Dummies book)

[nikster]

The latest Big Mac index;

Thailand $ 1.92

US $ 3.57

Britain $ 3.70

Australia $ 3.99

By the powers bestowed onto my by Google I found mcthai.co.th which lists the Big Mac at THB 70, and so > $2.

So much for that index.

The only good thing about the USD is that lots of economies are tied into it pretty heavily. That's why it doesn't fall into a bottomless pit.

[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?

I think what PKRV is trying to say is that, The dollor is losing against the baht. So if thailand paid for oil in baht at this moment in time oil would in reality be cheaper for thailand.

Nice thought but does not work out that way.

Sorry you misunderstood

The previous poster gave a better match to my own thought process.

"Think about it. All oil deals have to be settled in dollars which soaks up dollars and gives dollars value. "

At one time tulip bulbs were the preferred currency of trade.

http://tulip-fever.com/

Silly link, sorry, but true.

Edited October 21, 2009 by pkrv

[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.

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?

I think what PKRV is trying to say is that, The dollor is losing against the baht. So if thailand paid for oil in baht at this moment in time oil would in reality be cheaper for thailand.

Nice thought but does not work out that way.

Sorry you misunderstood

The previous poster gave a better match to my own thought process.

"Think about it. All oil deals have to be settled in dollars which soaks up dollars and gives dollars value. "

And yet nobody nowhere can explain this. Holding dollars in reserve for some length of time increases the scarcity of dollars and gives them value. Pricing oil in dollars has no effect on anything. Currencies are freely exchangeable.

How does pricing oil in dollars "soak up dollars"? Where do they go?

Edited October 22, 2009 by cocopops

[flying]

And yet nobody nowhere can explain this. Holding dollars in reserve for some length of time increases the scarcity of dollars and gives them value. Pricing oil in dollars has no effect on anything. Currencies are freely exchangeable.

How does pricing oil in dollars "soak up dollars"? Where do they go?

Google it there are many good articles online...(ie: How pricing in dollars benefits the US)

btw...What in the world makes you think holding dollars increase the scarcity? Thus giving them value?

Edited October 22, 2009 by flying

[Jezz]

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

English pound back up to just under 56 bht today, but it goes up and down, usually to 53, then up in a day or two.

[cocopops]

And yet nobody nowhere can explain this. Holding dollars in reserve for some length of time increases the scarcity of dollars and gives them value. Pricing oil in dollars has no effect on anything. Currencies are freely exchangeable.

How does pricing oil in dollars "soak up dollars"? Where do they go?

Google it there are many good articles online...(ie: How pricing in dollars benefits the US)

btw...What in the world makes you think holding dollars increase the scarcity? Thus giving them value?

When I hold dollars it means I purchased them but didn't sell them. Less dollars left for sale in the marketplace.

If I purchase them, buy oil, then the oil salesmen uses his windfall to buy THB, then there are the same number of dollars left in the marketplace.

In the first case dollars have become scarcer from the point of view of market participants. In the second nothing has changed, except the salesmen now has my THB and I have his oil. Holy smoke I have just discovered a way that one can purchase oil in THB! Teams of Goldman-Sachs sponsored hitmen may be on their way to my location now...

[flying]

When I hold dollars it means I purchased them but didn't sell them. Less dollars left for sale in the marketplace.

In the first case dollars have become scarcer from the point of view of market participants.

Dream on.....The FED has this amazing new technology called a printing press.

Your dollars scarcity is not controlled by you holding them. Ask any poor sap that has USD in savings for the past few years.

Or the poor Chinese for that matter

PS:perhaps best to start a thread about your theories as we have drifted from Georges original topic quite a bit.

Edited October 22, 2009 by flying

[kiwiinasia]

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

English pound back up to just under 56 bht today, but it goes up and down, usually to 53, then up in a day or two.

The pound will be toilet paper soon and then it will STILL be worth too much.

Buy forward exchange cover to protect your pensions boys, the days of 70 plus are long gone.