Why Is The Thai Baht So Strong?

[cfrmatt]

Hi all,

Can somebody please explain to me why it is that the Thai Baht is so strong against the Pound and Dollar..I hear rumours that the reason for this is that Thai investors and bankers keep the Baht high then buy the Pound and Dollar at a low rate then at some point will devalue the Thai Baht and sell it back making lots and lots of money. Is there any truth in this and if so is the Thai Baht likely to be devalued.

[bkkath]

Thai Baht is not strong the pound is miserably weak!!

Live rates at 2010.05.18 11:05:09 UTC

1.00 GBP = 46.6997 THB view GBP/THB chart

United Kingdom Pounds Thailand Baht

1 GBP = 46.6997 THB 1 THB = 0.0214134 GBP

Edited May 18, 2010 by bkkath

[wobblyjohn]

Thai Baht is not strong the pound is miserably weak!!

Thats quite true but given the current troubles why is the baht stable against other currencies

ie the Yen and Singapore dollar

[kuffki]

In summary, BOT controls thai baht, Of course this is only 1 mans opinion but to me it does sound right on the spot.

The following is a report by Bloomberg http://www.bloomberg...YVMcWYs.A&pos=3

May 17 (Bloomberg) -- Thailand’s stocks slumped the most in a month, the baht weakened and bond risk climbed after at least 36 people were killed in fighting between the military and anti- government protesters.

The benchmark SET index lost 2.7 percent to 747.83 at the midday break in Bangkok, the biggest drop since April 16, following the largest withdrawal by foreign funds from stocks in almost three years. The cost of credit-default swaps insuring Thai government debt rose the in more than a year.

“The political unrest has severely affected the economy and consumer confidence this quarter, hurting earnings of companies such as banks and property developers,” Sasikorn Charoensuwan, the head of research of Phillip Securities (Thailand) Pcl, said in an interview today. “What we are doing now is closely monitoring the development of the political situation.”

Foreign funds were net sellers of 14.7 billion baht ($453 million) of Thai equities last week, the most since the five days ended Nov. 23, 2007, as the nation’s worst political clash in two decades escalated. More than 255 were injured since the military moved in last week to seal off an area as large as New York’s Central Park occupied by demonstrators. Among those killed include Major-General Khattiya Sawisdipol, an active-duty soldier supporting protesters, who was shot in the head.

Rising Bond Risk

Thai credit-default swaps jumped 23 basis points to 170, according to BNP Paribas SA, suggesting deteriorating perceptions of creditworthiness. The increase is the biggest since March 2, 2009, according to CMA DataVision in New York.

The baht declined for a third day, dropping 0.2 percent to 32.43 per dollar in Bangkok and touched 32.47, the lowest level since April 1, according to data compiled by Bloomberg.

The SET may fall to 720 this week as the death toll from the political clash rises, said Win Udomrachtavanich, chief investment officer at Asset Plus Fund Management Co. in Bangkok, which oversees about $700 million. That would be lowest level for the benchmark measure since March 9, three days before the start of the anti-government protests in Bangkok.

“Foreign investors will sell more Thai shares as the political unrest worsens,” said Win, whose fund beat 97 percent of 234 Thai equities funds tracked by Bloomberg in the past year. “They will stay out of the Thai market for some time because the confrontation will continue for a couple of days.”

Early Close

The stock exchange will close at 3:30 p.m. Bangkok time today, about an hour earlier, according to a statement yesterday.

Protesters failed to disperse after Prime Minister Abhisit Vejjajiva offered to cut short his term, prompting the military action last week. The government’s first attempt to disperse the protesters on April 10 killed 25 people.

Thailand’s investment may slow as prolonged political tension hurts sentiment, Kim Eng Tan, a credit analyst at Standard & Poor’s, said in a telephone interview today. The rating company has a negative outlook on its BBB+ rating on Thailand, he said. S&P’s forecast for 3 percent to 4 percent economic growth this year takes into account a 2 percentage- point drop due to the turmoil, he said.

Fitch Ratings may review the country’s debt rating if the political crisis worsens, Associate Director Vincent Ho said.

Losses in the baht may be limited because the central bank controls speculative trading and limits transactions from corporations and investors, according to Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo.

Daily Cap

The Bank of Thailand sets a daily cap of 300 million baht for trading accounts held by non-residents, such as overseas corporations, funds and banks, for investments in securities and other financial instruments. A similar limit is also set for non-investment accounts.[/b]

“The authorities’ way to control speculative trading is working quite well under this kind of conditions,” Soma said. “Still, this kind of violence is definitely negative for the baht and stocks because that will further damage tourism, which is an important sector for their economy.”

The protesters, drawn mostly from poor rural areas and support former premier Thaksin Shinawatra, say they are ready to die in a fight for democracy. They have defied a state of emergency since April 7. Pro-Thaksin parties have won the past four elections. Abhisit took power in a December 2008 parliamentary vote after a court disbanded the ruling party for election fraud. His Democrat party hasn’t won a nationwide vote since 1992.

“Of course, you don’t want to buy the baht under this kind of serious crisis,” said Daisuke Uno, chief strategist in Tokyo at Sumitomo Mitsui Banking Corp., who expects the baht to trade between 32.30 and 32.50 over the next few days. “The baht market is dominated by domestic players who are facing a crisis situation and so we don’t know how much they will aggressively trade under this kind of situation.”

Edited May 18, 2010 by kuffki

[maxman71]

In summary, BOT controls thai baht, Of course this is only 1 mans opinion but to me it does sound right on the spot.

The following is a report by Bloomberg http://www.bloomberg...YVMcWYs.A&pos=3

May 17 (Bloomberg) -- Thailand’s stocks slumped the most in a month, the baht weakened and bond risk climbed after at least 36 people were killed in fighting between the military and anti- government protesters.

The benchmark SET index lost 2.7 percent to 747.83 at the midday break in Bangkok, the biggest drop since April 16, following the largest withdrawal by foreign funds from stocks in almost three years. The cost of credit-default swaps insuring Thai government debt rose the in more than a year.

“The political unrest has severely affected the economy and consumer confidence this quarter, hurting earnings of companies such as banks and property developers,” Sasikorn Charoensuwan, the head of research of Phillip Securities (Thailand) Pcl, said in an interview today. “What we are doing now is closely monitoring the development of the political situation.”

Foreign funds were net sellers of 14.7 billion baht ($453 million) of Thai equities last week, the most since the five days ended Nov. 23, 2007, as the nation’s worst political clash in two decades escalated. More than 255 were injured since the military moved in last week to seal off an area as large as New York’s Central Park occupied by demonstrators. Among those killed include Major-General Khattiya Sawisdipol, an active-duty soldier supporting protesters, who was shot in the head.

Rising Bond Risk

Thai credit-default swaps jumped 23 basis points to 170, according to BNP Paribas SA, suggesting deteriorating perceptions of creditworthiness. The increase is the biggest since March 2, 2009, according to CMA DataVision in New York.

The baht declined for a third day, dropping 0.2 percent to 32.43 per dollar in Bangkok and touched 32.47, the lowest level since April 1, according to data compiled by Bloomberg.

The SET may fall to 720 this week as the death toll from the political clash rises, said Win Udomrachtavanich, chief investment officer at Asset Plus Fund Management Co. in Bangkok, which oversees about $700 million. That would be lowest level for the benchmark measure since March 9, three days before the start of the anti-government protests in Bangkok.

“Foreign investors will sell more Thai shares as the political unrest worsens,” said Win, whose fund beat 97 percent of 234 Thai equities funds tracked by Bloomberg in the past year. “They will stay out of the Thai market for some time because the confrontation will continue for a couple of days.”

Early Close

The stock exchange will close at 3:30 p.m. Bangkok time today, about an hour earlier, according to a statement yesterday.

Protesters failed to disperse after Prime Minister Abhisit Vejjajiva offered to cut short his term, prompting the military action last week. The government’s first attempt to disperse the protesters on April 10 killed 25 people.

Thailand’s investment may slow as prolonged political tension hurts sentiment, Kim Eng Tan, a credit analyst at Standard & Poor’s, said in a telephone interview today. The rating company has a negative outlook on its BBB+ rating on Thailand, he said. S&P’s forecast for 3 percent to 4 percent economic growth this year takes into account a 2 percentage- point drop due to the turmoil, he said.

Fitch Ratings may review the country’s debt rating if the political crisis worsens, Associate Director Vincent Ho said.

Losses in the baht may be limited because the central bank controls speculative trading and limits transactions from corporations and investors, according to Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo.

Daily Cap

The Bank of Thailand sets a daily cap of 300 million baht for trading accounts held by non-residents, such as overseas corporations, funds and banks, for investments in securities and other financial instruments. A similar limit is also set for non-investment accounts.[/b]

“The authorities’ way to control speculative trading is working quite well under this kind of conditions,” Soma said. “Still, this kind of violence is definitely negative for the baht and stocks because that will further damage tourism, which is an important sector for their economy.”

The protesters, drawn mostly from poor rural areas and support former premier Thaksin Shinawatra, say they are ready to die in a fight for democracy. They have defied a state of emergency since April 7. Pro-Thaksin parties have won the past four elections. Abhisit took power in a December 2008 parliamentary vote after a court disbanded the ruling party for election fraud. His Democrat party hasn’t won a nationwide vote since 1992.

“Of course, you don’t want to buy the baht under this kind of serious crisis,” said Daisuke Uno, chief strategist in Tokyo at Sumitomo Mitsui Banking Corp., who expects the baht to trade between 32.30 and 32.50 over the next few days. “The baht market is dominated by domestic players who are facing a crisis situation and so we don’t know how much they will aggressively trade under this kind of situation.”

The SET movement not withstanding, Thai banks have high reserve ratios, they are prudent in their lending, and the Thai gov't is not printing funny money like the UK, US and now Euroland. Thailand has a real economy based on agriculture, manufacturing and tourism. That won't change much under either of the major contenders on the street slugging it out. Just my USD 0.02.

[Time Traveller]

In summary, BOT controls thai baht, Of course this is only 1 mans opinion but to me it does sound right on the spot.

The following is a report by Bloomberg http://www.bloomberg...YVMcWYs.A&pos=3

Losses in the baht may be limited because the central bank controls speculative trading and limits transactions from corporations and investors, according to Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo.

Daily Cap

The Bank of Thailand sets a daily cap of 300 million baht for trading accounts held by non-residents, such as overseas corporations, funds and banks, for investments in securities and other financial instruments. A similar limit is also set for non-investment accounts.[/b]

I think you misunderstand the meaning of this comment. Actually it was written poorly, but I believe the comment was intended to mean that the Central bank LIMIT speculative trading. Not control. In any case if your theory was true., ie. the BoT are intervening in the market to make the THB stronger than what it should be - that is they are buying THB (selling USD) - then this would show up in falling foreign reserves. However, official stats show otherwise. FX reserves are rising, implying that the BoT have indeed been intervening, but not trying to make THB stronger, they have been trying to make it weaker through selling THB on the market (and buying USD).

Of course cynics will argue that they just "make up" the official figures. To that comment I would reply that if what you claim is true, then obviously the day will come when they run out of USD dollars to sell (in order to buy up THB) then the THB will crash back to a level where market deems appropriate. You can believe that if you want, but I think I'll believe the official figures for a little longer.

[Krungbin]

...because the BOT controls/manages speculative trading,

...because the BOT intervene to have the THB at the level they want, buying US$ and euro to prevent it from going too high.

...because the US$ and the euro are (were) to strong and are now being "let go"...

...and because the THB is supported by HUGE reserves in foreign currencies (these reserves, I am being told, tripled the three last years!).

[Naam]

In summary, BOT controls thai baht, Of course this is only 1 mans opinion but to me it does sound right on the spot.

The following is a report by Bloomberg http://www.bloomberg...YVMcWYs.A&pos=3

Losses in the baht may be limited because the central bank controls speculative trading and limits transactions from corporations and investors, according to Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo.

Daily Cap

The Bank of Thailand sets a daily cap of 300 million baht for trading accounts held by non-residents, such as overseas corporations, funds and banks, for investments in securities and other financial instruments. A similar limit is also set for non-investment accounts.[/b]

I think you misunderstand the meaning of this comment. Actually it was written poorly, but I believe the comment was intended to mean that the Central bank LIMIT speculative trading. Not control. In any case if your theory was true., ie. the BoT are intervening in the market to make the THB stronger than what it should be - that is they are buying THB (selling USD) - then this would show up in falling foreign reserves. However, official stats show otherwise. FX reserves are rising, implying that the BoT have indeed been intervening, but not trying to make THB stronger, they have been trying to make it weaker through selling THB on the market (and buying USD).

Of course cynics will argue that they just "make up" the official figures. To that comment I would reply that if what you claim is true, then obviously the day will come when they run out of USD dollars to sell (in order to buy up THB) then the THB will crash back to a level where market deems appropriate. You can believe that if you want, but I think I'll believe the official figures for a little longer.

that's exactly what the BoT has done and still does. if this had not and were not presently the case we would see an even stronger Baht!

[Thailand]

...because the BOT controls/manages speculative trading,

...because the BOT intervene to have the THB at the level they want, buying US$ and euro to prevent it from going too high.

...because the US$ and the euro are (were) to strong and are now being "let go"...

...and because the THB is supported by HUGE reserves in foreign currencies (these reserves, I am being told, tripled the three last years!).

That's your answer right there. But with the current and past problems expect them to start to rapidly decline as foreign currency inflow ,particularly from tourism, will drop dramatically.

[ESB7]

Thai Baht is not strong the pound is miserably weak!!

Live rates at 2010.05.18 11:05:09 UTC

1.00 GBP = 46.6997 THB view GBP/THB chart

United Kingdom Pounds Thailand Baht

1 GBP = 46.6997 THB 1 THB = 0.0214134 GBP

Yawn Yawn, here we go again. thats why its only 38 - Euro ....Baht is strong at present

[celebessea]

Thailand DID have a stable economy. But obviously tourism, their major industry, has tanked. There is also negative news in agriculture, with the government asking farmers to hold off planting for climate reasons.

As the US economy strengthens, it makes no sense that the baht would naturally stay steady or even rise against the dollar. It's even more absurd when the baht is falling against the Euro and the pound while the dollar is gaining against those currancies. Again, the US economy is strengthening, the Euro is looking very rocky with Greece's and the other PIGS' troubles and the UK has its own issues.

I've been watching these currencies for a few years now. The baht only goes in one direction against the dollar. Not so against the other currencies.

When you've got skin in the game, it's pretty irritating. Those of us who comment are not just whining. Those who are manipulating the currency are stealing from OUR pockets.

[up-country_sinclair]

Why Is The Thai Baht So Strong?

The countries of the currencies you're comparing it to likely have significantly more debt.

[celebessea]

I've also been fascinated to watch the official media reporting the government's dire warnings of the economic fallout if the protesters continue. Through most of this--until it got deadly, that is--the stock market wasn't much affected. Was actually posting gains and good gains at that. Thailand does not have a modern economy. And it's not just Thaksin who manipulated the stock market. Personally, I wouldn't put much money there unless I had very influential friends.

The biggest tragedy of this whole mess is that the protesters are actually right. It's just that their leaders are worse than the ones currently in office.

[celebessea]

double post

Edited May 19, 2010 by celebessea

[kuffki]

Can someone then explain how THB got stronger in the last 2 days, after BOT officially stated that THB has been weakened.

Only last week, foreign investors pulled out over $500 million from Thailand, and just Monday an additional $150 million.

BOT is 101% controlling Thai baht, no question about that

[Time Traveller]

Thailand DID have a stable economy. But obviously tourism, their major industry, has tanked. There is also negative news in agriculture, with the government asking farmers to hold off planting for climate reasons.

I think you'll find that Electronics and Automobiles are more important industries to the economy than tourism. And agricultural prices are quite high at the moment, especially Sugar, Palm oil and Rubber.

As the US economy strengthens, it makes no sense that the baht would naturally stay steady or even rise against the dollar. It's even more absurd when the baht is falling against the Euro and the pound while the dollar is gaining against those currancies. Again, the US economy is strengthening, the Euro is looking very rocky with Greece's and the other PIGS' troubles and the UK has its own issues.

You're mistaken because the Baht is rising in value against both Euro and Pound as well as the dollar. Evidently, it's probably a case of the Euro and Pound being weak since THB has been stable or even falling against most asian currencies.

I've been watching these currencies for a few years now. The baht only goes in one direction against the dollar. Not so against the other currencies.

Watch for a few more years. You'll see that currencies are not a one way bet, if they were we would all be rich!

When you've got skin in the game, it's pretty irritating. Those of us who comment are not just whining. Those who are manipulating the currency are stealing from OUR pockets.

Sorry to hear that, but are you suggesting that you are more important than people in Thailand and they should be stealing from the Thai people instead by making their money worthless.? Typical western imperialism.

[celebessea]

Sorry to hear that, but are you suggesting that you are more important than people in Thailand and they should be stealing from the Thai people instead by making their money worthless.? Typical western imperialism.

Floating the baht would not be stealing from Thai people.A n artificially high baht hurts Thai people by making their products more expensive and therefore less attractive. Tourist based economies and export based economies do better when the currency is cheaper. So by artificially keeping the baht hight they are stealing from both of the Thai people and me when I spend dollars there.

Get over that chip on your shoulder, Time Traveler. So tired of people playing the race card. It's such a lazy way to try to influence a debate.

[wileycoyote]

I still think ,it is too early to say .

Tourism ,aviation & infrastructure are suffering due to the unrest.

Let's see what happens ,this time next month ?

[Time Traveller]

Sorry to hear that, but are you suggesting that you are more important than people in Thailand and they should be stealing from the Thai people instead by making their money worthless.? Typical western imperialism.

Floating the baht would not be stealing from Thai people.A n artificially high baht hurts Thai people by making their products more expensive and therefore less attractive. Tourist based economies and export based economies do better when the currency is cheaper. So by artificially keeping the baht hight they are stealing from both of the Thai people and me when I spend dollars there.

Get over that chip on your shoulder, Time Traveler. So tired of people playing the race card. It's such a lazy way to try to influence a debate.

Again I think you're confused. You're not asking for a floating baht. You are asking for a weak baht, just so that you can consume more. This is the issue at the front of economic debate at the moment. Western countries have run up huge deficits and debt because of a consumer culture. The weak Euro and USD are due to concerns over their ability to pay back their debts. What you want is the savers of the world (mostly Asian countries) to subsidise your consumption. It's not called chip on the shoulder, it's called rationalism.

BTW, tourist based economies don't need to have weak currencies to perform better, if this was true than Spain would be booming with the weaker Euro

Certainly tourists from Asian countries are not worried about strong THB. Clearly this is in reference to RATES and not race in this debate.

Edited May 19, 2010 by Time Traveller

[celebessea]

The US had a weak dollar policy long before the economic crash because it was good for US business. Consumers in the US complained because goods cost more. Tourists from Europe arrived in record numbers, all coming over for the shopping. Currency value does affect tourism rates. China is the master of keeping currency artificially low and their economy is booming because of it. It's a policy that nets them a great deal of capital.

Again, look at how the baht does relative to the dollar and the euro, look at those economies and there is no conclusion other than that the baht is being manipulated. I can do better by buying Euros and then buying baht for my business--not consumerism--but instead I'm looking at moving my business elsewhere. Look for more of same from bigger players. That's how Thais are being robbed, along with me.

That's rationalism.

[robert10]

I believe one factor contributing to the strong THB is that the Thai export sector has been doing well. Exporters sell foreign currencies which the exports are denominated in, and buy THB to repatriate export earnings.

[Time Traveller]

The US had a weak dollar policy long before the economic crash because it was good for US business. Consumers in the US complained because goods cost more.

So when a weaker baht leds to inflation in the cost of food, cooking oil, gasoline etc, you think the Thai will be happy about that? Price rises of 50% have led to riots in many countries during 2008 and for the last 2 months or so here in BKK you have people that are prepared to risk their lives essentially for a few hundred baht a day. Now they are rioting.

[celebessea]

I thought they were protesting for unequal access to justice and democracy, not for money.

In any case, Time Traveler, the discussion grows tiresome. I'm not into arguing just to argue. If you don't agree with me, I accept that. Go in peace.

[Abrak]

Again, look at how the baht does relative to the dollar and the euro, look at those economies and there is no conclusion other than that the baht is being manipulated. I can do better by buying Euros and then buying baht for my business--not consumerism--but instead I'm looking at moving my business elsewhere. Look for more of same from bigger players. That's how Thais are being robbed, along with me.

The point that you are totally failing to grasp is this.

To an extent the baht valuation is being manipulated by intervention from the BoT. But the attempted manipulation has been to try to stop the baht from appreciating. You only need to look at the BoT's balance sheet and you can see a sterilization policy of massive proportions. Or look at the BoT bond issuances or the forex reserves (which include their forward positions.)

It is as clear as daylight.

You are perhaps right in one respect. The intervention to try to stop the appreciation of the baht has essentially created massive losses for the BoT and the country.

[Time Traveller]

You are perhaps right in one respect. The intervention to try to stop the appreciation of the baht has essentially created massive losses for the BoT and the country.

The BoT losses are largely illusory since the balance sheet show these losses in THB. But since the FX reserves are rising (using the base as USD) then you could also argue that BoT has accumulated wealth for the country in the form of FX reserves. Since the BoT also has the power to influence the supply of money (Baht) in the economy, then in reality any such losses are meaningless.

[Abrak]

You are perhaps right in one respect. The intervention to try to stop the appreciation of the baht has essentially created massive losses for the BoT and the country.

The BoT losses are largely illusory since the balance sheet show these losses in THB. But since the FX reserves are rising (using the base as USD) then you could also argue that BoT has accumulated wealth for the country in the form of FX reserves. Since the BoT also has the power to influence the supply of money (Baht) in the economy, then in reality any such losses are meaningless.

Absolutely wrong and again missing the point that has been made to you several times.

First, the impossible triangle is that you cannot control your exchange rate and your money supply together without capital controls. Without significant capital controls you are left with with controlling one or other. The whole point is that if the BoT had sold its forex reserves rather than accumulating them it would have to increase in the money supply.

If you look at the balance sheet. You will see that the BoT has a massive short in Thai baht - say US$70bn. They effectively depressed money supply by 19% or so. In other words they have tried to control the exchange rate through reducing the money supply.

So currently the BoT has 19% of MS on its balance sheet doing nothing. In a simple equation 0.81 (M based on baht) v = P (in baht) Q. Now lets assume there is only dollar reserves. To repay its borrowings the BoT could sell US$ reserves and buy baht until M appreciates and P in nominal terms remains unchanged or it could simply print money which would essentially appreciate the baht through domestic inflation at the same exchange rate.

[badge]

"Why is the Baht so strong?"

'Cos thats the way uh-huh uh-huh they like it uh-huh uh-huh

Im sure they'll like a more competitive(weaker) THB at some point.

[Time Traveller]

You are perhaps right in one respect. The intervention to try to stop the appreciation of the baht has essentially created massive losses for the BoT and the country.

The BoT losses are largely illusory since the balance sheet show these losses in THB. But since the FX reserves are rising (using the base as USD) then you could also argue that BoT has accumulated wealth for the country in the form of FX reserves. Since the BoT also has the power to influence the supply of money (Baht) in the economy, then in reality any such losses are meaningless.

Absolutely wrong and again missing the point that has been made to you several times.

If you look at the balance sheet. You will see that the BoT has a massive short in Thai baht - say US$70bn. They effectively depressed money supply by 19% or so. In other words they have tried to control the exchange rate through reducing the money supply.

Now lets assume there is only dollar reserves. To repay its borrowings the BoT could sell US$ reserves and buy baht until M appreciates and P in nominal terms remains unchanged or it could simply print money which would essentially appreciate the baht through domestic inflation at the same exchange rate.

Correct, the BoT has a short position in THB which means they are long the USD from higher levels. So as the dollar has fallen from 38 to approx 32, then their balance sheet has losses in THB. As figures show the their FX reserves have risen. Only if you measure the in THB would you show losses.

Printing money does not increase the value of a currency. In fact it does the opposite and getting back to my first line, the fact that BoT has short position in the baht is meaningless since if they want they could just print money to settle against the short position. Such a "quantative easing" would in time weaken the baht.

There is no reason why they would try to purposely shrink the money supply. What they are doing is mopping up excessive liquidity by issuing bonds. The problem is that too much money is coming into Thailand - either through Capital (some of it short term) inflows or export earnings. This demand for baht can only be met either by a stronger baht or through the BoT selling Baht. The second option means that BoT either takes on a short position in THB or print money.

[caf]

In summary, BOT controls thai baht, Of course this is only 1 mans opinion but to me it does sound right on the spot.

The following is a report by Bloomberg http://www.bloomberg...YVMcWYs.A&pos=3

Losses in the baht may be limited because the central bank controls speculative trading and limits transactions from corporations and investors, according to Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo.

Daily Cap

The Bank of Thailand sets a daily cap of 300 million baht for trading accounts held by non-residents, such as overseas corporations, funds and banks, for investments in securities and other financial instruments. A similar limit is also set for non-investment accounts.[/b]

I think you misunderstand the meaning of this comment. Actually it was written poorly, but I believe the comment was intended to mean that the Central bank LIMIT speculative trading. Not control. In any case if your theory was true., ie. the BoT are intervening in the market to make the THB stronger than what it should be - that is they are buying THB (selling USD) - then this would show up in falling foreign reserves. However, official stats show otherwise. FX reserves are rising, implying that the BoT have indeed been intervening, but not trying to make THB stronger, they have been trying to make it weaker through selling THB on the market (and buying USD).

Of course cynics will argue that they just "make up" the official figures. To that comment I would reply that if what you claim is true, then obviously the day will come when they run out of USD dollars to sell (in order to buy up THB) then the THB will crash back to a level where market deems appropriate. You can believe that if you want, but I think I'll believe the official figures for a little longer.

Greece has been caught out for massaging figures; why do you suppose Thailand is more trustworthy? I am not sure it is cynical to assume the figures are doctored. It may be a more realistic interpretation. I assume you accept that information is controlled in Thailand whether that is newsprint, tv or government figures.

caf

[pkrv]

You are perhaps right in one respect. The intervention to try to stop the appreciation of the baht has essentially created massive losses for the BoT and the country.

The BoT losses are largely illusory since the balance sheet show these losses in THB. But since the FX reserves are rising (using the base as USD) then you could also argue that BoT has accumulated wealth for the country in the form of FX reserves. Since the BoT also has the power to influence the supply of money (Baht) in the economy, then in reality any such losses are meaningless.

Absolutely wrong and again missing the point that has been made to you several times.

First, the impossible triangle is that you cannot control your exchange rate and your money supply together without capital controls. Without significant capital controls you are left with with controlling one or other. The whole point is that if the BoT had sold its forex reserves rather than accumulating them it would have to increase in the money supply.

If you look at the balance sheet. You will see that the BoT has a massive short in Thai baht - say US$70bn. They effectively depressed money supply by 19% or so. In other words they have tried to control the exchange rate through reducing the money supply.

So currently the BoT has 19% of MS on its balance sheet doing nothing. In a simple equation 0.81 (M based on baht) v = P (in baht) Q. Now lets assume there is only dollar reserves. To repay its borrowings the BoT could sell US$ reserves and buy baht until M appreciates and P in nominal terms remains unchanged or it could simply print money which would essentially appreciate the baht through domestic inflation at the same exchange rate.

Hi Abrack - I think what you are saying is Thailand is spending its massive USD FX reserves - is that a true assement of your thoughts?