In Layman's Terms, Why Is He Baht Still So Strong?

[damian5000]

Can someone explain this to me in layman's terms? This country is practically at civil war and the baht sill strong. Last I looked (4 or 5 days ago.) it was at 32.

[JimmyTheMook]

still the weekend and most currency markets are closed or not actively trading

[simpathy]

for atarters. it s not a civil war. just some boys and girls being paid to protest.

thw world must believe los is not that as unstable as some make it out to be.

[sonicdragon]

Thailand runs a current account surplus and a trade surplus, which naturally support the baht. For there to be a big selloff in the baht, there would have to be the perception of economic collapse. The big money foreign investors likely think that's not going to happen and see the current events as just the next chapter in Thailand's ongoing political "evolution" (if you can call it that), or maybe they think it's just business as usual. Let's not forget there have been 18 military coup's in Thailand since 1932, and the current events are a continuation of the crisis that began in 2005. Protests and crack-downs are not exactly something new. Another factor is the expectation for a revaluation of the RMB, which will tend to support all asian currencies.

I suspect there isn't that much fast money invested in Thailand that can leave overnight. Obviously there will be some, and some short term investors may get cold feet and of course speculators could get involved, so there may be a knee-jerk reaction tomorrow, but I wouldn't expect anything dramatic unless the current situation gets very much worse. The BOT will likely resist a dramatic fall in baht, in favour of a more gradual depreciation, because currency instability is a problem in itself, often more so than the direction of movement.

Edited April 11, 2010 by sonicdragon

[Langsuan Man]

I think the question that everyone should be asking is not why the Baht is still so strong, but why the other currencies (Dollar, Euro, Pound) are all so weak

It all comes down to deficit spending which the currency markets loathe

[kiwiinasia]

The baht is strong in large part due to the way in which the BOT manages currency trading in the baht.

Short term speculative baht transactions are not allowed according to the BOT policy.

How they do this explains the small difference in changing baht here or doing so offshore where you will always get a worse rate.

The baht is over-valued and its strength reflects weaker overseas currencies.

The $/Pound/yen/Eur are ALL stuffed at the moment.

[Stjohnm]

I was going to give the LSE (London School of Economics) textbook answer but everybody beat me to it and hit the nail on the head from slightly varying angles

[massein]

still the weekend and most currency markets are closed or not actively trading

this has been a marvel to me for the last 2 year , it should be in the toilet, the only answer is that uncle is sam has the presses going 24/7 which brings the dollar down

[DDSt]

The Baht is so strong and will get stronger, because the fiat money printing presses in Thailand are running much slower than in the USA and Europe. When the Chinese let their money float, and rise in value against the Euro and Dollar, the Baht will also rise in value. Back to the 20s by year end.

[chiang mai]

Unfortunately I don't think that anybody has yet come up with the correct answer on this one yet so try this explanation:

The Thai economy is in pretty good shape and as has been pointed out earlier it has a surplus in its current and trade accounts and it also has substantial foreign currency reserves. At a time when the major economies and currencies of western countries are under stress, Thailand is an attractive investment option and as such it attracts substantial inflows of foreign capital, capital that might otherwise have been invested in US, UK or European equities and the like. Those positive factors create two effects; the first is that as private and institutional overseas investors sell foreign currency and buy Baht, it causes the Baht to strengthen because it is seen to be in demand - the second effect is that action also causes the Thai stock indices to rise.

The downside of the above from a Thai perspective is that the Thai Baht is naturally strong anyway at present by virtue of its economy versus those of its major trading partners and the BOT has been selling Thai Baht and buying USD in an attempt to prevent the currency from rising too quickly, the additional impact of capital inflows only compounds this problem - the evidence for the foregoing is the month on month increases in the BOT foreign currency reserves which contrary to some views, is not generated by tourism!

All of the above is compounded by a general fall in major currencies globally and this has magnified the rise of the Baht. Fortunately the Baht is not a major currency so the cost to the BOT to manage the strength of the Baht (prevent it from rising too rapidly) is not huge but it is significant and others in this forum believe it is money not well spent. Regardless, my understanding of BOT policy on the exchange front is that the currency will be maintained at an average level of a basket of regional currencies and that large and sudden swings against USD are to be minimised since all BOT export bills are settled in USD.

[sokal]

The Baht is so strong and will get stronger, because the fiat money printing presses in Thailand are running much slower than in the USA and Europe. When the Chinese let their money float, and rise in value against the Euro and Dollar, the Baht will also rise in value. Back to the 20s by year end.

That's because Thailand and SE Asia leaned their lesson about hot money and money printing in 1997.

[sokal]

Unfortunately I don't think that anybody has yet come up with the correct answer on this one yet so try this explanation:

The Thai economy is in pretty good shape and as has been pointed out earlier it has a surplus in its current and trade accounts and it also has substantial foreign currency reserves. At a time when the major economies and currencies of western countries are under stress, Thailand is an attractive investment option and as such it attracts substantial inflows of foreign capital, capital that might otherwise have been invested in US, UK or European equities and the like. Those positive factors create two effects; the first is that as private and institutional overseas investors sell foreign currency and buy Baht, it causes the Baht to strengthen because it is seen to be in demand - the second effect is that action also causes the Thai stock indices to rise.

The downside of the above from a Thai perspective is that the Thai Baht is naturally strong anyway at present by virtue of its economy versus those of its major trading partners and the BOT has been selling Thai Baht and buying USD in an attempt to prevent the currency from rising too quickly, the additional impact of capital inflows only compounds this problem - the evidence for the foregoing is the month on month increases in the BOT foreign currency reserves which contrary to some views, is not generated by tourism!

All of the above is compounded by a general fall in major currencies globally and this has magnified the rise of the Baht. Fortunately the Baht is not a major currency so the cost to the BOT to manage the strength of the Baht (prevent it from rising too rapidly) is not huge but it is significant and others in this forum believe it is money not well spent. Regardless, my understanding of BOT policy on the exchange front is that the currency will be maintained at an average level of a basket of regional currencies and that large and sudden swings against USD are to be minimised since all BOT export bills are settled in USD.

A strong Bht is not a problem. It just means they can afford to export less.

[Rinrada]

Supprise really ...should be a basket case by now but of course the $US,EU and our £s are still trying to recover from the tosspot Bankers who messed up (being polite)overplayed the game and knocked the poo out of the rates.

Will bounce back of course ...but..when ?

....incid £ is hitting 1.54 so lets see.....

Might be able to afford another holiday to LOS this year ..........if anything left of it.....

[britmaveric]

Well seems Thailand is immune to anything - I think Forex markets ignore what happens politically - seems chaos is business as usual.

[chiang mai]

Supprise really ...should be a basket case by now but of course the $US,EU and our £s are still trying to recover from the tosspot Bankers who messed up (being polite)overplayed the game and knocked the poo out of the rates.

Will bounce back of course ...but..when ?

....incid £ is hitting 1.54 so lets see.....

Might be able to afford another holiday to LOS this year ..........if anything left of it.....

I don't wan to rain on your parade and of course I hope you do manage another holiday this year, but, many/most are looking for that mini resurgence to 1.54 to max out at around 1.55 before beginning a long leg downwards, best try and get that holiday in sharpish.

[neil324]

Unfortunately I don't think that anybody has yet come up with the correct answer on this one yet so try this explanation:

The Thai economy is in pretty good shape and as has been pointed out earlier it has a surplus in its current and trade accounts and it also has substantial foreign currency reserves. At a time when the major economies and currencies of western countries are under stress, Thailand is an attractive investment option and as such it attracts substantial inflows of foreign capital, capital that might otherwise have been invested in US, UK or European equities and the like. Those positive factors create two effects; the first is that as private and institutional overseas investors sell foreign currency and buy Baht, it causes the Baht to strengthen because it is seen to be in demand - the second effect is that action also causes the Thai stock indices to rise.

The downside of the above from a Thai perspective is that the Thai Baht is naturally strong anyway at present by virtue of its economy versus those of its major trading partners and the BOT has been selling Thai Baht and buying USD in an attempt to prevent the currency from rising too quickly, the additional impact of capital inflows only compounds this problem - the evidence for the foregoing is the month on month increases in the BOT foreign currency reserves which contrary to some views, is not generated by tourism!

All of the above is compounded by a general fall in major currencies globally and this has magnified the rise of the Baht. Fortunately the Baht is not a major currency so the cost to the BOT to manage the strength of the Baht (prevent it from rising too rapidly) is not huge but it is significant and others in this forum believe it is money not well spent. Regardless, my understanding of BOT policy on the exchange front is that the currency will be maintained at an average level of a basket of regional currencies and that large and sudden swings against USD are to be minimised since all BOT export bills are settled in USD.

A strong Bht is not a problem. It just means they can afford to export less.

Really? Japan in the late 80's, China loves a strong currency don't she?

All this spare capicty being cut i suppose the Thai's will be just sitting back sipping pina caladas counting their strong baht.

[Rinrada]

Supprise really ...should be a basket case by now but of course the $US,EU and our £s are still trying to recover from the tosspot Bankers who messed up (being polite)overplayed the game and knocked the poo out of the rates.

Will bounce back of course ...but..when ?

....incid £ is hitting 1.54 so lets see.....

Might be able to afford another holiday to LOS this year ..........if anything left of it.....

I don't wan to rain on your parade and of course I hope you do manage another holiday this year, but, many/most are looking for that mini resurgence to 1.54 to max out at around 1.55 before beginning a long leg downwards, best try and get that holiday in sharpish.

Thanks....just got back a couple of weeks ago and best I got with Nationwide was @ 48/£ but still have happy memories of that day in 1997 sitting in the "koffee chorp "at the Honey when it hit 95=£.

One old boy (x school teacher) said he did a deal along Suk Rd somewhere and changed £5k at 100 = 500,000 Bt...

Those were the days etc...

Last I heard of him he was still sitting somewhere on the beach in Patti...must be almost 90 years old...

[Time Traveller]

The answer in laymans terms: More money is coming into Thailand than is going out. Justify it however you wish.

[sokal]

Supprise really ...should be a basket case by now but of course the $US,EU and our £s are still trying to recover from the tosspot Bankers who messed up (being polite)overplayed the game and knocked the poo out of the rates.

Will bounce back of course ...but..when ?

....incid £ is hitting 1.54 so lets see.....

Might be able to afford another holiday to LOS this year ..........if anything left of it.....

what will bounce back ?, of course ?

[sokal]

Unfortunately I don't think that anybody has yet come up with the correct answer on this one yet so try this explanation:

The Thai economy is in pretty good shape and as has been pointed out earlier it has a surplus in its current and trade accounts and it also has substantial foreign currency reserves. At a time when the major economies and currencies of western countries are under stress, Thailand is an attractive investment option and as such it attracts substantial inflows of foreign capital, capital that might otherwise have been invested in US, UK or European equities and the like. Those positive factors create two effects; the first is that as private and institutional overseas investors sell foreign currency and buy Baht, it causes the Baht to strengthen because it is seen to be in demand - the second effect is that action also causes the Thai stock indices to rise.

The downside of the above from a Thai perspective is that the Thai Baht is naturally strong anyway at present by virtue of its economy versus those of its major trading partners and the BOT has been selling Thai Baht and buying USD in an attempt to prevent the currency from rising too quickly, the additional impact of capital inflows only compounds this problem - the evidence for the foregoing is the month on month increases in the BOT foreign currency reserves which contrary to some views, is not generated by tourism!

All of the above is compounded by a general fall in major currencies globally and this has magnified the rise of the Baht. Fortunately the Baht is not a major currency so the cost to the BOT to manage the strength of the Baht (prevent it from rising too rapidly) is not huge but it is significant and others in this forum believe it is money not well spent. Regardless, my understanding of BOT policy on the exchange front is that the currency will be maintained at an average level of a basket of regional currencies and that large and sudden swings against USD are to be minimised since all BOT export bills are settled in USD.

A strong Bht is not a problem. It just means they can afford to export less.

Really? Japan in the late 80's, China loves a strong currency don't she?

All this spare capicty being cut i suppose the Thai's will be just sitting back sipping pina caladas counting their strong baht.

What about when the US was the biggest export nation in the world ? Did your grandparents travel there because the currency was dirt cheap ?

Exports is the price a country pays for imports so when the bht appreciates, gas, oil, food and gold get cheaper for Thai people.

[sarahsbloke]

Exports is the price a country pays for imports so when the bht appreciates, gas, oil, food and gold get cheaper for Thai people.

So why has the price of petrol and every other import gone up in the last year?

[sokal]

Exports is the price a country pays for imports so when the bht appreciates, gas, oil, food and gold get cheaper for Thai people.

So why has the price of petrol and every other import gone up in the last year?

The price of those commodities has gone up more for currencies that have depreciated against the bht.

[antony77]

strong against what currency. The UK pound? or the US dollar.? Perhaps because of the poor economy in the UK and debt problems in the US. But the Baht has weakened against the Aussie dollar!!

[neverdie]

sorry, I just noted antony's post, which is what i said about the aussie dollar

Edited April 12, 2010 by neverdie

[Irene]

The answer in laymans terms: More money is coming into Thailand than is going out. Justify it however you wish.

In laymans terms, this is the best answer and basically that is all you need to know.

The flows are: exports more than imports (therefore more dollars in than out),

tourism, (one may not believe it with the current havoc, this has turned out to be bigger and every year has been in the forefront in the best place to visit, hopefully current problem is only a hiccup),

relative term of us dollars weakened,

perception of future strength of the Thai economy, (IMF predicted 6% for 2010, may be by now they want to change their mind downward),

public debts not prohibitively high like Greece,

foreign currency reserves in the national kitty are extraordinary high,

etc.

I would love for others from reading other answers in the thread to complete the "etc.".

I just chuckle in reading Time Traveller's one short line. That is really coming from people in the know.

[Naam]

strong against what currency. The UK pound? or the US dollar.? Perhaps because of the poor economy in the UK and debt problems in the US. But the Baht has weakened against the Aussie dollar!!

that depends on the period one is looking at. the AUD does not fetch a single Satang more than five years ago.

[Naam]

The baht is strong in large part due to the way in which the BOT manages currency trading in the baht.

Short term speculative baht transactions are not allowed according to the BOT policy.

How they do this explains the small difference in changing baht here or doing so offshore where you will always get a worse rate.

The baht is over-valued and its strength reflects weaker overseas currencies.

The $/Pound/yen/Eur are ALL stuffed at the moment.

incorrect information. out of 6 transfers during the last 18 months i got a better rate offshore on 4 transfers. i mentioned that several times but the fairy tale "onshore always better than offshore" is still published in Thaivisa.

[William Osborne]

http://www.businessweek.com/news/2010-03-3...ures-funds.html

[sokal]

The baht is strong in large part due to the way in which the BOT manages currency trading in the baht.

Short term speculative baht transactions are not allowed according to the BOT policy.

How they do this explains the small difference in changing baht here or doing so offshore where you will always get a worse rate.

The baht is over-valued and its strength reflects weaker overseas currencies.

The $/Pound/yen/Eur are ALL stuffed at the moment.

incorrect information. out of 6 transfers during the last 18 months i got a better rate offshore on 4 transfers. i mentioned that several times but the fairy tale "onshore always better than offshore" is still published in Thaivisa.

where off shore are you getting better rates ?

[VegasVic]

Thailand runs a current account surplus and a trade surplus, which naturally support the baht. For there to be a big selloff in the baht, there would have to be the perception of economic collapse. The big money foreign investors likely think that's not going to happen and see the current events as just the next chapter in Thailand's ongoing political "evolution" (if you can call it that), or maybe they think it's just business as usual. Let's not forget there have been 18 military coup's in Thailand since 1932, and the current events are a continuation of the crisis that began in 2005. Protests and crack-downs are not exactly something new. Another factor is the expectation for a revaluation of the RMB, which will tend to support all asian currencies.

I suspect there isn't that much fast money invested in Thailand that can leave overnight. Obviously there will be some, and some short term investors may get cold feet and of course speculators could get involved, so there may be a knee-jerk reaction tomorrow, but I wouldn't expect anything dramatic unless the current situation gets very much worse. The BOT will likely resist a dramatic fall in baht, in favour of a more gradual depreciation, because currency instability is a problem in itself, often more so than the direction of movement.

Sonic pretty much summed it up here in this post! Should the protests continue much longer I am sure that there wil be some profit taking by foreign investors in the SET and as they sell thier baht denominated investments and convert to $, Yen, Euro ect. the baht will fall off a bit. Of course if this gets uglier from here then all bets are off, if foriegn investors pull out of the SET in large numbers and foreign investments in real estate and private businesses drop off as well and exports drop off then the baht could have a substantial drop from its current levels If this worst case scenario were to happen even then the BOT still has enough reserves of foriegn currency to mitigate the potential drop in the baht, at least for a while.