Baht weakening has sapped Thailand’s foreign reserves

[Down the rabbit hole]

I think the drain on USD reserves happens because businesses that do transactions in dollars need more dollars than formerly because the baht is weaker. So, they buy the additional USD from the BOT. The last time I looked some time ago, the BOT's USD reserves were around $200 billion. So, the decline of the baht over the last few years has already caused significant erosion. It's not because the the BOT is trying to support the baht. Just the opposite is the case. Pridyathorn has publicly stated recently that they want to weaken the baht to support exports, although this might just be a case of Pridyathorn putting the best face on a situation that is out of his control.

Thailand's high level of USD reserves is the result of a policy change that arose after the Tom Yum Goong crisis of 1997, when a flight of foreign capital (the famous "hot ball of money") from Thailand caused, among other effects, all of the major Thai banks to be unable to repay their dollar loans, because they didn't have enough dollars. The banks were forced to sell 49% ownership shares to US banks at firesale prices to avoid going bankrupt. Following the crisis, Thailand and other Asian countries in particular, resolved to avoid a similar crunch in the future by maintaining high dollar reserves. China maintains high reserves, but for different reasons. The downside of the high dollar reserve policy of Thailand and the other countries is that a large chunk of wealth is tied up in useless currency and US Treasury bonds that could be invested in developing the country. A side effect of the maintenance of high dollar reserves is to keep the USD at a high level, which, while it may be desirable for us expats, has a harmful effect on the US economy, in particular, on manufacturing for export.

Let's all hope they don't engage in the lunacy of selling USD to buy Baht. That strategy did not end well in 1997 ( other than for George Soros).

The govt should view this weakening as a positive thing ( and in any event the depreciation is not all that great relative to other currencies )

The performance of the baht, and keeping it artificially high against the USD is secondary to maintaining face (our currency couldn't possibly weaken against foreigner's currency nonono) . You need to remember these are Thais, they cannot escape their culture or their psychology which is why they keep sodding things up and never seem to learn from it.

Edited July 25, 2015 by Down the rabbit hole

[Thai at Heart]

Taken a long time for reality to step in thought hasn't it.

They've manipulated it as long as they could without some sort of announcement.

So let me get this right. The Thais manipulated USD interest rates and fiscal stimulus so that they could keep a strong baht.....

[Down the rabbit hole]

Taken a long time for reality to step in thought hasn't it.

They've manipulated it as long as they could without some sort of announcement.

So let me get this right. The Thais manipulated USD interest rates and fiscal stimulus so that they could keep a strong baht.....

Jesus.

Yes, I'm sure that's right.

Keep drinking the KoolAid

[nong38]

Maybe they should start comparing the baht to the Chinese Yaun.

Or 7-11.

[ikke]

You could also say the 800,000 I have in bank for retirement visa also was "sapped" although no money has gone anywhere. Maybe I can get government bailout for hardship?

Be positive, someone who did not quite have enough income in $ or £ to qualify in baht for an extension based on retirement ,may now qualify.

I think in this case they should lift the amount to 1.5 mjn,

[Time Traveller]

THE DOLLAR IS DYING, and the only people that don't want to accept this are the Americans and thier Government, many of the traditional trades that were in dollars ,(be it oil or other commodities) have switched to their own or the sellers currencies. Nixon decided to take the dollar out of the restrictions that gold placed on his ability to wage war in Viet Nam. And it was decided at the time ,that the new world currency would be the dollar. (Bretton Wood Agreement)

There are several problems with that ,no 1 being the Federal Reserve which has share holders and is a Private Entity, seperate from the rest of the financial institutions, and the merry go round between the Fed ,Treasury and the Banks is a total Con trick, because they can print millions of bits of worthless paper (dollars) without anything to back it up. The Gov . issues a bond , the big Banks bid for the bond , they take the bond to the Fed , and the Fed writes a cheque for that amount with a cheque book account that has no money in it ,zero zilch, A criminal offence for you or me. , Then -Hey Presto -Abbra codabbra -- Money miraculously rolls off the banks printing presses .

This is not just the dollar , the World has followed , And they are heading up a g©reek with no paddle !!!

People have been saying this about the Dollar for decades. But what's happening is the opposite. Capital previously invested in Emerging markets is flowing back into the US. Chinese rich are also moving money ouf of china into America (and other western countries).

In fact, there is hundreds of billions sitting in the offshore accounts of large American companies such as Google, Apple, GE, Facebook, Visa, Microsoft, Amazon, etc, waiting for the chance to repatriate that money into the US.

So continue your anti dollar opinion. But just know that on a long enough time horizon, we are all dead.

[NeverSure]

THE DOLLAR IS DYING, and the only people that don't want to accept this are the Americans and thier Government, many of the traditional trades that were in dollars ,(be it oil or other commodities) have switched to their own or the sellers currencies. Nixon decided to take the dollar out of the restrictions that gold placed on his ability to wage war in Viet Nam. And it was decided at the time ,that the new world currency would be the dollar. (Bretton Wood Agreement)

There are several problems with that ,no 1 being the Federal Reserve which has share holders and is a Private Entity, seperate from the rest of the financial institutions, and the merry go round between the Fed ,Treasury and the Banks is a total Con trick, because they can print millions of bits of worthless paper (dollars) without anything to back it up. The Gov . issues a bond , the big Banks bid for the bond , they take the bond to the Fed , and the Fed writes a cheque for that amount with a cheque book account that has no money in it ,zero zilch, A criminal offence for you or me. , Then -Hey Presto -Abbra codabbra -- Money miraculously rolls off the banks printing presses .

This is not just the dollar , the World has followed , And they are heading up a g©reek with no paddle !!!

First you need to know that there hasn't been enough gold mined in the history of the world to back the USD, much less other currencies. The world's population has grown to divide up what is there even more. Economies must grow but the ready supply of gold won't.

The second thing is that gold is just another symbol - it is of value only because people perceive it is. You can't eat it if you're hungry or heat your living space if you're cold. You first would have to convert that gold into something you could eat to find a trade when people are hungry. Food would be the new gold.

The US Fed does not and never has printed money. That's the domain of the US government - the Department of The Treasury. End of.

Your misconceptions about what happens are stunning. The only way the US can get more money to fund deficits or debt is to sell treasuries on the open market. That's the law. Now, the UK and the Eurozone CAN and DO issue bonds which they buy themselves which is a different and potentially deadly sleight of hand.

[CaptHaddock]

THE DOLLAR IS DYING, and the only people that don't want to accept this are the Americans and thier Government, many of the traditional trades that were in dollars ,(be it oil or other commodities) have switched to their own or the sellers currencies. Nixon decided to take the dollar out of the restrictions that gold placed on his ability to wage war in Viet Nam. And it was decided at the time ,that the new world currency would be the dollar. (Bretton Wood Agreement)

There are several problems with that ,no 1 being the Federal Reserve which has share holders and is a Private Entity, seperate from the rest of the financial institutions, and the merry go round between the Fed ,Treasury and the Banks is a total Con trick, because they can print millions of bits of worthless paper (dollars) without anything to back it up. The Gov . issues a bond , the big Banks bid for the bond , they take the bond to the Fed , and the Fed writes a cheque for that amount with a cheque book account that has no money in it ,zero zilch, A criminal offence for you or me. , Then -Hey Presto -Abbra codabbra -- Money miraculously rolls off the banks printing presses .

This is not just the dollar , the World has followed , And they are heading up a g©reek with no paddle !!!

First you need to know that there hasn't been enough gold mined in the history of the world to back the USD, much less other currencies. The world's population has grown to divide up what is there even more. Economies must grow but the ready supply of gold won't.

The second thing is that gold is just another symbol - it is of value only because people perceive it is. You can't eat it if you're hungry or heat your living space if you're cold. You first would have to convert that gold into something you could eat to find a trade when people are hungry. Food would be the new gold.

The US Fed does not and never has printed money. That's the domain of the US government - the Department of The Treasury. End of.

Your misconceptions about what happens are stunning. The only way the US can get more money to fund deficits or debt is to sell treasuries on the open market. That's the law. Now, the UK and the Eurozone CAN and DO issue bonds which they buy themselves which is a different and potentially deadly sleight of hand.

This is not correct. While the Treasury operates the Mint that prints actual paper currency, most dollars are not held as paper currency, but as book entries in accounts at banks and other financial institutions. The Fed creates money in the broader sense by providing credit to member banks which is indeed created out of thin air, although backed by the US govt. Contrary to what Andy8017 thinks, there is nothing degenerate about that. The currency is not being debased. It is not a con trick, although it does depend on faith and credit, which can be lost. The Treasury borrows to finance the spending authorized by Congress, but the Fed decides whether those obligations will be held as Treasury bonds or US currency by deciding whether to create credit to buy the bonds or not. Currency and bonds are essentially similar financial obligations. So, to provide liquidity to banks as the lender of last resport during the 2008 financial crisis the Fed expanded its balance sheet by creating a a trillion dollars of credit out of nothing and using it to buy up first Treasury bonds and then, for the first time, mortgage-backed bonds from the banks enabling them to meet their various payment obligations and thereby avoiding a collapse of the banking system. So, Ben Bernanke was correct when he said that the govt has a way to avoid deflation by using the Fed's "printing press" of credit creation to "print" money.

Creating credit out of thin air is not mysterious and it doesn't take a central bank to do it. You and I can do it. If I sell you my car and accept a note from you promising to make monthly payments for the next two years, I have created credit out of thin air also. I could then sell the note for a discounted cash amount to some investor and now I fully liquid from the credit which I created. There is nothing necessarily degenerate about that process, although it does entail the risk of default. Govts have abused their ability to print money in the past, but not the US govt, not this time.

[Konaboy1]

Continued development bringing happiness and something or other to the Thai people.

great photo Highway 51.

and that's where the Baht is headed!

[Thai at Heart]

THE DOLLAR IS DYING, and the only people that don't want to accept this are the Americans and thier Government, many of the traditional trades that were in dollars ,(be it oil or other commodities) have switched to their own or the sellers currencies. Nixon decided to take the dollar out of the restrictions that gold placed on his ability to wage war in Viet Nam. And it was decided at the time ,that the new world currency would be the dollar. (Bretton Wood Agreement)

There are several problems with that ,no 1 being the Federal Reserve which has share holders and is a Private Entity, seperate from the rest of the financial institutions, and the merry go round between the Fed ,Treasury and the Banks is a total Con trick, because they can print millions of bits of worthless paper (dollars) without anything to back it up. The Gov . issues a bond , the big Banks bid for the bond , they take the bond to the Fed , and the Fed writes a cheque for that amount with a cheque book account that has no money in it ,zero zilch, A criminal offence for you or me. , Then -Hey Presto -Abbra codabbra -- Money miraculously rolls off the banks printing presses .

This is not just the dollar , the World has followed , And they are heading up a g©reek with no paddle !!!

First you need to know that there hasn't been enough gold mined in the history of the world to back the USD, much less other currencies. The world's population has grown to divide up what is there even more. Economies must grow but the ready supply of gold won't.

The second thing is that gold is just another symbol - it is of value only because people perceive it is. You can't eat it if you're hungry or heat your living space if you're cold. You first would have to convert that gold into something you could eat to find a trade when people are hungry. Food would be the new gold.

The US Fed does not and never has printed money. That's the domain of the US government - the Department of The Treasury. End of.

Your misconceptions about what happens are stunning. The only way the US can get more money to fund deficits or debt is to sell treasuries on the open market. That's the law. Now, the UK and the Eurozone CAN and DO issue bonds which they buy themselves which is a different and potentially deadly sleight of hand.

The USA issues bonds too. T bills are short term, treasury notes and bonds are longer term with a stated interest rate exactly the same as in the USA and Europe.

[Thai at Heart]

THE DOLLAR IS DYING, and the only people that don't want to accept this are the Americans and thier Government, many of the traditional trades that were in dollars ,(be it oil or other commodities) have switched to their own or the sellers currencies. Nixon decided to take the dollar out of the restrictions that gold placed on his ability to wage war in Viet Nam. And it was decided at the time ,that the new world currency would be the dollar. (Bretton Wood Agreement)

There are several problems with that ,no 1 being the Federal Reserve which has share holders and is a Private Entity, seperate from the rest of the financial institutions, and the merry go round between the Fed ,Treasury and the Banks is a total Con trick, because they can print millions of bits of worthless paper (dollars) without anything to back it up. The Gov . issues a bond , the big Banks bid for the bond , they take the bond to the Fed , and the Fed writes a cheque for that amount with a cheque book account that has no money in it ,zero zilch, A criminal offence for you or me. , Then -Hey Presto -Abbra codabbra -- Money miraculously rolls off the banks printing presses .

This is not just the dollar , the World has followed , And they are heading up a g©reek with no paddle !!!

First you need to know that there hasn't been enough gold mined in the history of the world to back the USD, much less other currencies. The world's population has grown to divide up what is there even more. Economies must grow but the ready supply of gold won't.

The second thing is that gold is just another symbol - it is of value only because people perceive it is. You can't eat it if you're hungry or heat your living space if you're cold. You first would have to convert that gold into something you could eat to find a trade when people are hungry. Food would be the new gold.

The US Fed does not and never has printed money. That's the domain of the US government - the Department of The Treasury. End of.

Your misconceptions about what happens are stunning. The only way the US can get more money to fund deficits or debt is to sell treasuries on the open market. That's the law. Now, the UK and the Eurozone CAN and DO issue bonds which they buy themselves which is a different and potentially deadly sleight of hand.

This is not correct. While the Treasury operates the Mint that prints actual paper currency, most dollars are not held as paper currency, but as book entries in accounts at banks and other financial institutions. The Fed creates money in the broader sense by providing credit to member banks which is indeed created out of thin air, although backed by the US govt. Contrary to what Andy8017 thinks, there is nothing degenerate about that. The currency is not being debased. It is not a con trick, although it does depend on faith and credit, which can be lost. The Treasury borrows to finance the spending authorized by Congress, but the Fed decides whether those obligations will be held as Treasury bonds or US currency by deciding whether to create credit to buy the bonds or not. Currency and bonds are essentially similar financial obligations. So, to provide liquidity to banks as the lender of last resport during the 2008 financial crisis the Fed expanded its balance sheet by creating a a trillion dollars of credit out of nothing and using it to buy up first Treasury bonds and then, for the first time, mortgage-backed bonds from the banks enabling them to meet their various payment obligations and thereby avoiding a collapse of the banking system. So, Ben Bernanke was correct when he said that the govt has a way to avoid deflation by using the Fed's "printing press" of credit creation to "print" money.

Creating credit out of thin air is not mysterious and it doesn't take a central bank to do it. You and I can do it. If I sell you my car and accept a note from you promising to make monthly payments for the next two years, I have created credit out of thin air also. I could then sell the note for a discounted cash amount to some investor and now I fully liquid from the credit which I created. There is nothing necessarily degenerate about that process, although it does entail the risk of default. Govts have abused their ability to print money in the past, but not the US govt, not this time.

What enables this is fractional asset banking. A 100 USD of assets can be used to fund a higher given number as a multiple.

The govt doesn't "print money" , it expands or contracts the money supply, which is essentially the same thing.

[khunpa]

If the THB is weakening then for sure the rest of the world will follow shortly. Nothing better or stronger than something Thai!

[personchester]

You could also say the 800,000 I have in bank for retirement visa also was "sapped" although no money has gone anywhere. Maybe I can get government bailout for hardship?

The 800.K. in Thai bank will only be sapped if it returns back to USD.

But it might not be able to be done at any time because the 800.K.are needed 3.months prior the annual Visa application.

Many retired expat fellows in Thailand are happy about it because it will increase the income of their monthly

pension that also applies to the retired Brits because the GBP has also increased.

The US and UK holiday makers that arrive here are happy because it reduces the general Thai costs.

[Berkshire]

I think the drain on USD reserves happens because businesses that do transactions in dollars need more dollars than formerly because the baht is weaker. So, they buy the additional USD from the BOT. The last time I looked some time ago, the BOT's USD reserves were around $200 billion. So, the decline of the baht over the last few years has already caused significant erosion. It's not because the the BOT is trying to support the baht. Just the opposite is the case. Pridyathorn has publicly stated recently that they want to weaken the baht to support exports, although this might just be a case of Pridyathorn putting the best face on a situation that is out of his control.

Thailand's high level of USD reserves is the result of a policy change that arose after the Tom Yum Goong crisis of 1997, when a flight of foreign capital (the famous "hot ball of money") from Thailand caused, among other effects, all of the major Thai banks to be unable to repay their dollar loans, because they didn't have enough dollars. The banks were forced to sell 49% ownership shares to US banks at firesale prices to avoid going bankrupt. Following the crisis, Thailand and other Asian countries in particular, resolved to avoid a similar crunch in the future by maintaining high dollar reserves. China maintains high reserves, but for different reasons. The downside of the high dollar reserve policy of Thailand and the other countries is that a large chunk of wealth is tied up in useless currency and US Treasury bonds that could be invested in developing the country. A side effect of the maintenance of high dollar reserves is to keep the USD at a high level, which, while it may be desirable for us expats, has a harmful effect on the US economy, in particular, on manufacturing for export.

Let's all hope they don't engage in the lunacy of selling USD to buy Baht. That strategy did not end well in 1997 ( other than for George Soros).

The govt should view this weakening as a positive thing ( and in any event the depreciation is not all that great relative to other currencies )

The performance of the baht, and keeping it artificially high against the USD is secondary to maintaining face (our currency couldn't possibly weaken against foreigner's currency nonono) . You need to remember these are Thais, they cannot escape their culture or their psychology which is why they keep sodding things up and never seem to learn from it.

There are some pretty smart guys on this thread discussing this issue. You are not one of them.

[chiang mai]

+1