America declares war on world currencies: Thai opinion

[webfact]

OVERDRIVE
America declares war on world currencies
Thanong Khanthong

BANGKOK: -- It can now be fully confirmed that we are in the middle of a currency war on a global scale. On April 19, the Thai baht was trading at Bt28.55 against the US dollar. At that point, Dr Prasarn Trairatvorakul, the Bank of Thailand governor, almost lost his job.

He'd failed to stem the baht's rise. And he had also defended the central bank's interest rate policy as appropriate for the potential growth of the Thai economy.

Prasarn is also reluctant to intervene in the foreign exchange market to weaken the baht. Doing so would create further losses on the central bank's balance sheet when the weak dollar is converted to baht term. Yet the rapid rise of the baht, which breached the Bt28 level, is seen as unacceptable by the government and powerful exporters. The Bank of Thailand has become a punching bag.

But over the past week the central bank has been buying up the baht to prevent its rapid decline.

A sudden shift in sentiment derives from the possibility that the US Federal Reserve might cut back its quantitative easing (QE). Ben Bernanke, the chairman of the US Federal Reserve, has hinted that the Fed might pull back some of its QE, now going on at the rate of US$85 billion a month, if there are further signs of the US recovery. Standard and Poor's, the rating agency, has also upgraded the US credit outlook from negative to positive. These signs are good enough to send the Japanese stock market and other emerging markets tumbling.

The Fed launched the currency war through its QE, which started after the collapse of Wall Street and the US stock market in 2008. By printing dollars on a massive scale and holding the interest rate to almost 0 per cent, the Fed has pursued a double-edged policy. First, the cheap dollar helps push up financial assets and prevents the banks from failing. Second, it creates bubbles in other markets and pushes up the value of other currencies and makes their exports less competitive. This is a classic currency war.

The US has given Japan a pat on the back. Japan, which has been in an economic slump for more than 20 years, has been persuaded to adopt QE. It had tried QE eight times in the past, to no avail. "Abenomics" calls for QE 9, which is designed to prop up inflation from 1 per cent to 2 per cent and double the balance sheet of the Bank of Japan to $2.7 trillion. This has helped push up the stock market by more than 70 per cent to the 15,942 level. The yen, which stood at 77 to the dollar in September last year, was also been dragged down to 103-104 recently to boost exports.

But a hint that the Fed might take away some of the punch bowls has spoiled it all. The baht has swung from Bt28.55 against the dollar in April to Bt31 on Wednesday and Bt30.95 yesterday. The yen appreciated from 87 against the dollar last year to peak at 104 before rising to 94 now. The Nikkei index has fallen almost like a stone from 15,942 to 12,582.

The events in Thailand and Japan show that we do not have control over our interest rate, foreign exchange or capital market. As a peripheral country, Thailand's financial markets are subject to the policy of the Fed, which stands high at the centre of global finance.

This brings us to the recent debate on the interest-rate policy between the Finance Ministry and the Bank of Thailand. Deputy Prime Minister and Finance Minister Kittiratt Na Ranong, in particular, had been applying pressure for the central bank to cut the interest rate by at least one full percentage point to stem capital inflows. He believes that the wide gap in the interest rate differential between the baht (2.75 per cent) and the dollar (0.25 per cent) was the main reason for the capital inflows. Foreign money, which largely went into the Thai bond market, pushed up the baht's value. It also went into the stock market to drive up the SET index to 1,650.

Representatives of the Finance Ministry, the National Economic and Social Development Board and the Federation of Thai Industries came out in chorus to urge a drastic cut in the central bank's rate to stimulate the economy and also to discourage capital inflows.

The central bank has budged by agreeing to cut the interest rate by 25 basis points to 2.50 percent. It has also introduced four capital control measures in case of further rapid rises in the baht.

But the sudden outflow of capital, which has sent the Thai stock marketing tumbling and the baht on a sliding path, shows that the interest rate has little - or virtually no influence - over capital inflow. When the financial centre - the Fed in this case - coughs, all of the world's financial markets recoil for fear of catching a cold.

We are in the middle of the currency war. But few have a clue as to what actually is happening. By playing the game of the Fed, we'll all lose our shirts soon.


-- The Nation 2013-06-14

[ajarnpot]

My two cents : all that is needed is an expensive war, one in which the us needs to borrow lots of money from a more affluent country, then spend the next 50 + years paying it all off

history repeats itself

[Loptr]

The baht rose in value as the world's currencies were devalued over the last several years with quantitative easing being the order of the day. Now that the USD is strengthening and the US economy is improving, the baht is going to take a hit. Especially when the QE dries up. No conspiracy here. 35 baht to the dollar sound pretty good to me!

Edited June 14, 2013 by Loptr

[samran]

Thanong is a moron if he believes this. Currencies float. If the central bank tries to control the baht, then they are just betting against financial markets, and inevitably, they'll lose.

[manarak]

Thanong is a moron if he believes this. Currencies float. If the central bank tries to control the baht, then they are just betting against financial markets, and inevitably, they'll lose.

That's actually wrong.

While Central Banks are very unlikely to win a battle to keep a currency's value up when the market wants it down, they have unlimited firepower to make it fall vs. other currencies.

And the "currency war" has been on for several years now.

Edited June 14, 2013 by manarak

[xxoahu22]

??

where to begin...

"hints" that QE "might" ease = Global Currency War?

"If there are signs of US recovery..." The US economy is entering it's 4th straight year of growth.

US inflation is low so the Fed helps US exports with QE. This is not Global Currency War. If inflation picks up the Fed will cut QE.

[samran]

Manarak - I said 'control' the baht. If the government wants to deflate a currency away a la Zimbabwe, then you are right. But that doesn't meet my definition of control.

[Naam]

Thanong is a moron if he believes this. Currencies float. If the central bank tries to control the baht, then they are just betting against financial markets, and inevitably, they'll lose.

That's actually wrong.

While Central Banks are very unlikely to win a battle to keep a currency's value up when the market wants it down, they have unlimited firepower to make it fall vs. other currencies.

And the "currency war" has been on for several years now.

let us unanimously agree that you are both right.

[manarak]

Manarak - I said 'control' the baht. If the government wants to deflate a currency away a la Zimbabwe, then you are right. But that doesn't meet my definition of control.

Well, the Thai Bank Governor was almost sacked because the baht was too high. In the current situation, 'control' is equivalent with 'devaluate'.

And I would avoid using the word 'deflate', because deflation is the opposite of inflation, so deflation pushes the value of a currency up.

[theblether]

Thanong is a moron if he believes this. Currencies float. If the central bank tries to control the baht, then they are just betting against financial markets, and inevitably, they'll lose.

Eh.......wrong. I've posted a report twice on Thaivisa that the incoming Governor of the Bank of England is likely to try to devalue the GBP by up to 15%.

Currency manipulation has long been a nefarious weapon, there would be no shock if the Fed was quietly attempting it while protesting at others ( China ) doing the same thing.

[yoshiwara]

Nice try to blame Thailand's woes on the Fed. Poor little Thailand. But then The Nation in its pro-gold bug guise has a distinct weakness here.

[AnotherOneAmerican]

Thanong is a moron if he believes this. Currencies float. If the central bank tries to control the baht, then they are just betting against financial markets, and inevitably, they'll lose.

Eh.......wrong. I've posted a report twice on Thaivisa that the incoming Governor of the Bank of England is likely to try to devalue the GBP by up to 15%.

Currency manipulation has long been a nefarious weapon, there would be no shock if the Fed was quietly attempting it while protesting at others ( China ) doing the same thing.

England, like Thailand isn't a big enough player to control the value of their own currency.

[charliebru]

Nice to have the US to blame for the Thailands problems.

[samran]

The BOT governor wasn't 'almost sacked'. The BOT act clearly states that he can only be discharged for 'gross incompetence'. Basically, he is immune from the MOF and the Minister if he keeps doing his job. Now, if he listed to the Minister, and then things go wrong, then it won't be the Minister who loses his job for 'gross incompetence'.

The BOT is doing its job, and doing so separated, via its independence, from the bottom feeders which pass as finance ministers these days. What people are effectively asking is that monetary policy is put back into the hands of these populist incompetents. No thanks.

[virtualtraveller]

Good thing the BoT resisted govt intervention, this proved it would have been useless and wasteful, and it's out of our hands, only thing you can do is make Thailand a less attractive place for money, but then your economy takes flak. Double edged sword, money had been pouring in for months, I always knew it would leave a lot quicker, in weeks, that's speculators for you. We moaned for ages about the baht too strong, now it's weakening it will benefit many, fundamentals are still strong, it's slide will likely stop at an equilibrium well below 35 to the dollar.

[yoshiwara]

Thanong is a moron if he believes this. Currencies float. If the central bank tries to control the baht, then they are just betting against financial markets, and inevitably, they'll lose.

Eh.......wrong. I've posted a report twice on Thaivisa that the incoming Governor of the Bank of England is likely to try to devalue the GBP by up to 15%.

Currency manipulation has long been a nefarious weapon, there would be no shock if the Fed was quietly attempting it while protesting at others ( China ) doing the same thing.

Continuous blether.

[Naam]

Good thing the BoT resisted govt intervention, this proved it would have been useless and wasteful, and it's out of our hands, only thing you can do is make Thailand a less attractive place for money, but then your economy takes flak. Double edged sword, money had been pouring in for months, I always knew it would leave a lot quicker, in weeks, that's speculators for you. We moaned for ages about the baht too strong, now it's weakening it will benefit many, fundamentals are still strong, it's slide will likely stop at an equilibrium well below 35 to the dollar.

did you realise that the slide stopped?

[yoshiwara]

Thanong is a moron if he believes this. Currencies float. If the central bank tries to control the baht, then they are just betting against financial markets, and inevitably, they'll lose.

Eh.......wrong. I've posted a report twice on Thaivisa that the incoming Governor of the Bank of England is likely to try to devalue the GBP by up to 15%.

Currency manipulation has long been a nefarious weapon, there would be no shock if the Fed was quietly attempting it while protesting at others ( China ) doing the same thing.

England, like Thailand isn't a big enough player to control the value of their own currency.

Some people like to wave the word 'manipulation' around like some light saber. You are correct. However the TCB was pushed to drop the central interest rate by the finance minister to bring down the Thai baht, the same minister now screaming at the overshoot and caught out by JPN gyrations. With all the shouting from the government side (blame attachment) the TCB's 'calmness' being shredded.

[theblether]

Thanong is a moron if he believes this. Currencies float. If the central bank tries to control the baht, then they are just betting against financial markets, and inevitably, they'll lose.

Eh.......wrong. I've posted a report twice on Thaivisa that the incoming Governor of the Bank of England is likely to try to devalue the GBP by up to 15%.

Currency manipulation has long been a nefarious weapon, there would be no shock if the Fed was quietly attempting it while protesting at others ( China ) doing the same thing.

Continuous blether.

http://www.telegraph.co.uk/finance/economics/10086652/New-BoE-chief-Carney-will-devalue-sterling-Pimco-warns.html

[yoshiwara]

Thanong is a moron if he believes this. Currencies float. If the central bank tries to control the baht, then they are just betting against financial markets, and inevitably, they'll lose.

Eh.......wrong. I've posted a report twice on Thaivisa that the incoming Governor of the Bank of England is likely to try to devalue the GBP by up to 15%.

Currency manipulation has long been a nefarious weapon, there would be no shock if the Fed was quietly attempting it while protesting at others ( China ) doing the same thing.

Continuous blether.

http://www.telegraph.co.uk/finance/economics/10086652/New-BoE-chief-Carney-will-devalue-sterling-Pimco-warns.html

What you said was 'the incoming Governor of the Bank of England is likely to try to devalue the GBP by up to 15%.' What you didn't say was that someone from Pimco was predicting that. Not the same thing. So blether it still is.

[deecee10]

If there is a war going on, why is the U.S. ambassador kissing <deleted> in Phuket?

[PCA]

time for a TV party, beer in coffee cups

[manarak]

??

where to begin...

"hints" that QE "might" ease = Global Currency War?

"If there are signs of US recovery..." The US economy is entering it's 4th straight year of growth.

US inflation is low so the Fed helps US exports with QE. This is not Global Currency War. If inflation picks up the Fed will cut QE.

what's funny is that since these rumors are out, the USD lost ground fast.

personally, I can't concile the available information with the USD's moves, something else is probably going on that we don't know

[yoshiwara]

??

where to begin...

"hints" that QE "might" ease = Global Currency War?

"If there are signs of US recovery..." The US economy is entering it's 4th straight year of growth.

US inflation is low so the Fed helps US exports with QE. This is not Global Currency War. If inflation picks up the Fed will cut QE.

what's funny is that since these rumors are out, the USD lost ground fast.

personally, I can't concile the available information with the USD's moves, something else is probably going on that we don't know

Would that be a known unknown or an unknown unknown?

[manarak]

??

where to begin...

"hints" that QE "might" ease = Global Currency War?

"If there are signs of US recovery..." The US economy is entering it's 4th straight year of growth.

US inflation is low so the Fed helps US exports with QE. This is not Global Currency War. If inflation picks up the Fed will cut QE.

what's funny is that since these rumors are out, the USD lost ground fast.

personally, I can't concile the available information with the USD's moves, something else is probably going on that we don't know

Would that be a known unknown or an unknown unknown?

to many such vacuous posts may appear wise, but that doesn't work with everybody

[gosompoi]

When it grows in strength they yell oh my god bad for exports, central bank must stop it rising. When it loses value they yell oh my god bad for imports the central bank must control it better. They are just seeing only the bad, it goes up it is bad, it goes it is down bad, they yell someone needs to lose their job and fix it. Like a dog chasing its own tail.

Edited June 14, 2013 by gosompoi

[kblaze]

misleading headline; makes you think something new has happened, when in fact the writer is referring to QE starting the "currency war". Which means this is 4+ years old..

this is a great article for someone who has no idea what has been going on with QE/THB vs USD/Policy rate

but besides that, it offers 0 "new" information, and pretty much the only "opinion" it posits is blame the Fed.

[gosompoi]

Control the baht? Next control the price of gold? They are controlling the price of rice look at how well that is going. Controlling the price of pork, eggs, and the list goes on. If they want control of the markets then they need to withdraw from the world like North Korea and become communist country.

[Thai at Heart]

Thanong is a moron if he believes this. Currencies float. If the central bank tries to control the baht, then they are just betting against financial markets, and inevitably, they'll lose.

Eh.......wrong. I've posted a report twice on Thaivisa that the incoming Governor of the Bank of England is likely to try to devalue the GBP by up to 15%.

Currency manipulation has long been a nefarious weapon, there would be no shock if the Fed was quietly attempting it while protesting at others ( China ) doing the same thing.

England, like Thailand isn't a big enough player to control the value of their own currency.

Ah, but at least they can print their own money which is still recognised for some global settlements.

This hand wringing is so ridiculous, I can't believe it is actually happening. First it's too strong, then it's too weak, and Kittirat sitting around banging the table asking for a 1% cut in rates right at the moment that it appeared that the US was going to stop QE and the Japanese are about to print so much money, it will devalue the Yen to the floor.

If he had got his way, a 1% cut would have absolutely sent the baht tumbling out of control. So now he is bleating that "oooooh, it moved to far, too quick, stop." Does he have any understanding of how currency markets work. Thailand and the mere baht are a spec in the calculations for investment decisions, and it attracts the more speculative types of investment because this type of stupid arguement between politicians and the BOT occur.

Anyone with any basic economic understanding could see that the appreciation in the baht was being caused by speculative carry trade for the last 3 or 4 months, and the moment they cut interest rates, and the US declared QE is reducing, the money moved out. We have lost control of our exchange rate? What the hell does that mean? You are a minnow in a very turbulent sea, control what you can which is inflation and consumption within your own country.

What they should be doing instead of wringing hands and trying to stimulate this or that part of the economy is targetting inflation, and then liberalising the markets in business to encourage more FDI and domestic consumption by removing uncompetitive practices. Until the pricing mechanism for imports genuinely feeds into the domestic market, nothing changes.

So Kittirat got what he wanted, now watch inflation start to move, and then, oooops, can we slow down the construction market please, we are stoking more of a bubble. The bloke is an absolute bull in a China shop with his actions.

[mjsansai]

??

where to begin...

"hints" that QE "might" ease = Global Currency War?

"If there are signs of US recovery..." The US economy is entering it's 4th straight year of growth.

US inflation is low so the Fed helps US exports with QE. This is not Global Currency War. If inflation picks up the Fed will cut QE.

what's funny is that since these rumors are out, the USD lost ground fast.

personally, I can't concile the available information with the USD's moves, something else is probably going on that we don't know

Would that be a known unknown or an unknown unknown?

it is easier to eat soup with a fork than to make money in foreign exchange