Why Is The Thai Baht So Strong?

[Abrak]

slightly unfair, Abrak

They've done a good job of undercutting Asean (they = BoT policy + political risk) currencies and maintaining competitive USD bloc levels

Look at the exports by destination now; you'd have to say that Fx policy is working in terms of exports

While philosophically I agree with you in general terms about central bank interventions, I think (and I'm sure you won't agree) that the BoT have done a decent job of tinkering around the edges to get Baht to a place that works in a very pragmatic 'Thai' way. The Bot don't have the global power to implement the brilliant whims of teams of thousands of the world's smartest quants in a way that our Northern neighbor but one does

And Gambles this is where I fundamentally disagree with you and probably others.

If the BoT had not intervened where would the baht be now? I actually think not much different. While you assume intervention say might at least have achieved a prevention of further appreciation. Now if you go back to 1997 you will see that defense of the baht ended in maximum depreciation. Defense of appreciation might not achieve maximum appreciation but it might achieve nothing. Many people are not inherently stupid, they know the BoT funds, they know their position, they can see their forwards. So the cost/benefit analysis is simply a matter of size. Sterilization has to reach a point at which it is counter productive - it is not high.

[lannarebirth]

USD:THB building a new base off its lows. Might there be some thinking that "reconciliation" might cost a whole lot of money? I guess some of the tax schemes, notably property tax, aren't due to kick in for a few years. Any possibility of budget shortfalls beyond the deficit they've just estblished?

[Abrak]

So I will try again....

Here is Wikipedia on sterilization....

Sterilization in macroeconomics refers to open market operations undertaken by a country's central bank (CB) whose aim is to neutralize the impact of associated foreign exchange operations.[1]

Most often sterilization is used in the context of a central bank which takes actions to negate potentially harmful impacts of capital inflows, such as currency appreciation, loss of export competitiveness and inflation. Occasionally it may refer to any form of monetary policy which seeks to leave the domestic money supply unchanged in the face of shocks or other changes, including capital outflows.

Central banks use sterilization to eliminate negative side-effects of their intervention in foreign exchange markets. For example, assume that a country's currency is depreciating. To prevent this the country's central bank may decide to intervene in the foreign exchange market of the country. To prop up the value of the nation's currency the CB may resort to creating artificial demand for its currency. This it may do by selling foreign exchange reserves and buying local currency. The resultant demand stops the currency's depreciation but decreases the amount of liquidity in the local economy (the amount of local currency held by banks, credit unions, businesses, individuals, etc). Hence, to offset this negative outcome the CB may engage in open market operations that supply liquidity into the system (by buying local-currency-denominated bonds), thereby "sterilizing" the negative effect of its foreign exchange intervention

Now simply reverse the last paragraph....

For example, assume that a country's currency is appreciating. To prevent this the country's central bank may decide to resort to intervene in the foreign exchange market of the country. To depress the value of the nations's currency the CB may resort to creating artificial supply for its currency. This it may do by buying foreign exchange reserves and selling local currency. The resultant supply stops the currency appreciating but increases the amount of liquidity in the local market (the amount of local currency held by banks, credit unions, businesses, individuals etc.). Hence, to offest this negative outcome the CB may engage in open market operations that decreases liquidity into the system (by selling local-currency-denominated bonds), thereby 'sterilizing' the negative effect of its foreign exchange intervention.

Simply the BoT is short baht - long reserves. It can only unwind by issuing baht into the domestic MS and creating inflation or allowing the baht to appreciate as others buy US dollars and sell baht to repay the bonds.

So we are stuffed until the Uk/US economies grow, or thailand runs out of foreign reserves, but there is still also a huge wealth of an individual (would that ever be calculated into a countries wealth) ???

but there aren't really any of the signs of excess liquidity in terms of asset bubbles or high inflation so no sterlisation via bond issues required

recent events certainly won't have helped liquidity so as far as BoT then 'steady as she goes'

Oh well to an extent I agree with you so speak to the BoT and cancel the US$7bn bond issues over the next month.

http://www.bot.or.th/English/FinancialMark...e_AllTypes.aspx

[Gambles]

slightly unfair, Abrak

They've done a good job of undercutting Asean (they = BoT policy + political risk) currencies and maintaining competitive USD bloc levels

Look at the exports by destination now; you'd have to say that Fx policy is working in terms of exports

While philosophically I agree with you in general terms about central bank interventions, I think (and I'm sure you won't agree) that the BoT have done a decent job of tinkering around the edges to get Baht to a place that works in a very pragmatic 'Thai' way. The Bot don't have the global power to implement the brilliant whims of teams of thousands of the world's smartest quants in a way that our Northern neighbor but one does

And Gambles this is where I fundamentally disagree with you and probably others.

If the BoT had not intervened where would the baht be now? I actually think not much different. While you assume intervention say might at least have achieved a prevention of further appreciation. Now if you go back to 1997 you will see that defense of the baht ended in maximum depreciation. Defense of appreciation might not achieve maximum appreciation but it might achieve nothing. Many people are not inherently stupid, they know the BoT funds, they know their position, they can see their forwards. So the cost/benefit analysis is simply a matter of size. Sterilization has to reach a point at which it is counter productive - it is not high.

I don't think that we were talking about 1997 so much as the current policies by the current BoT in relation to the current policy challenges. It seems that we're both happy with the outcome but you think that this would have been achieved without BoT and the associated costs whereas I'm happy to give them credit for this. Maybe one day we'll have enough info to know who was right or maybe the truth even lies somewhere in between. AS always, I totally respect your PoV but I guess that we're both to soem extent in the realms of conjecture....

[Gambles]

So I will try again....

Here is Wikipedia on sterilization....

Sterilization in macroeconomics refers to open market operations undertaken by a country's central bank (CB) whose aim is to neutralize the impact of associated foreign exchange operations.[1]

Most often sterilization is used in the context of a central bank which takes actions to negate potentially harmful impacts of capital inflows, such as currency appreciation, loss of export competitiveness and inflation. Occasionally it may refer to any form of monetary policy which seeks to leave the domestic money supply unchanged in the face of shocks or other changes, including capital outflows.

Central banks use sterilization to eliminate negative side-effects of their intervention in foreign exchange markets. For example, assume that a country's currency is depreciating. To prevent this the country's central bank may decide to intervene in the foreign exchange market of the country. To prop up the value of the nation's currency the CB may resort to creating artificial demand for its currency. This it may do by selling foreign exchange reserves and buying local currency. The resultant demand stops the currency's depreciation but decreases the amount of liquidity in the local economy (the amount of local currency held by banks, credit unions, businesses, individuals, etc). Hence, to offset this negative outcome the CB may engage in open market operations that supply liquidity into the system (by buying local-currency-denominated bonds), thereby "sterilizing" the negative effect of its foreign exchange intervention

Now simply reverse the last paragraph....

For example, assume that a country's currency is appreciating. To prevent this the country's central bank may decide to resort to intervene in the foreign exchange market of the country. To depress the value of the nations's currency the CB may resort to creating artificial supply for its currency. This it may do by buying foreign exchange reserves and selling local currency. The resultant supply stops the currency appreciating but increases the amount of liquidity in the local market (the amount of local currency held by banks, credit unions, businesses, individuals etc.). Hence, to offest this negative outcome the CB may engage in open market operations that decreases liquidity into the system (by selling local-currency-denominated bonds), thereby 'sterilizing' the negative effect of its foreign exchange intervention.

Simply the BoT is short baht - long reserves. It can only unwind by issuing baht into the domestic MS and creating inflation or allowing the baht to appreciate as others buy US dollars and sell baht to repay the bonds.

So we are stuffed until the Uk/US economies grow, or thailand runs out of foreign reserves, but there is still also a huge wealth of an individual (would that ever be calculated into a countries wealth) ???

but there aren't really any of the signs of excess liquidity in terms of asset bubbles or high inflation so no sterlisation via bond issues required

recent events certainly won't have helped liquidity so as far as BoT then 'steady as she goes'

Oh well to an extent I agree with you so speak to the BoT and cancel the US$7bn bond issues over the next month.

http://www.bot.or.th/English/FinancialMark...e_AllTypes.aspx

buy my feeling and I haven't tracked it and you'd know better than me is that bond issuance has been somewhat lower than comparable economies for a period of time now so this isn't even catching up - but as I said I haven't tracked so happy to have my gut feeling put right if I've got it wrong!

[somtampet]

going up going up going up

47.2 on xe.com