Bank of Thailand's accumulated losses of 725 billion

[ExpatOilWorker]

The Post reported that the Bank of Thailand lost 80.8 billion baht in 2016 and have accumulated losses of 725 billion baht.

 

Is that normal for a central bank to operate at an annual loss?

I always had the impression that central banks, like the FED, had a free lunch by charging commercial banks interest on the M1 money supply, which they just make out of thin air.

 

NB: Just Google the title to find the article in the Post.

 

 

Edited May 27, 2017 by ExpatOilWorker

[Swiss1960]

National Banks can not just charge the nation's banks more in order to cover the deficit, as those shareholder owned Banks might have to file for bankruptcy.

Swiss National Bank had many years of deficit lately (almost 1000 billion baht in 2015) due to interventions in the money market to keep the Swiss franc from getting to strong.

National Banks will just print more money if needed in order to cover for their losses

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[lkn]

15 hours ago, Swiss1960 said:

National Banks can not just charge the nation's banks more in order to cover the deficit, as those shareholder owned Banks might have to file for bankruptcy.

Banks will simply pass on the interest hike to their customers, making it more expensive to borrow money and thus may slow down the economy.

 

Interest rate changes are only used to control monetary policy, not to make money for the central bank.

 

15 hours ago, Swiss1960 said:

National Banks will just print more money if needed in order to cover for their losses

Putting more money into circulation (“printing money”) goes under liabilities on the balance sheet, so it would just increase the deficit, and it may also lead to inflation.

 

The reason why an insolvent central bank does not matter is that you’re not going to see a bank run, as that doesn’t really make sense.

 

In the old days, a bank run on the FED could happen if everybody brought their FED issued dollar bills to the bank, and demanded to get them exchanged to gold. However, as the value of the dollar was tied to the value of gold, the FED’s assets (gold bullions) should match their liabilities (outstanding currency).

 

The problem with Bank of Thailand is that among its assets are euros, yens, Australian dollars, etc., and these are now worth less (in Thai baht) so the total value of the bank’s assets has become lower than its liabilities (outstanding currency).

 

But basically all holders of Thai baht would have to exchange their Thai baht to a foreign currency, for this to be a problem. Highly unlikely, especially given the currency controls enforced by Bank of Thailand.

Edited May 28, 2017 by lkn

[ExpatOilWorker]

On 29/5/2560 at 2:19 AM, lkn said:

Banks will simply pass on the interest hike to their customers, making it more expensive to borrow money and thus may slow down the economy.

 

Interest rate changes are only used to control monetary policy, not to make money for the central bank.

 

Putting more money into circulation (“printing money”) goes under liabilities on the balance sheet, so it would just increase the deficit, and it may also lead to inflation.

 

The reason why an insolvent central bank does not matter is that you’re not going to see a bank run, as that doesn’t really make sense.

 

In the old days, a bank run on the FED could happen if everybody brought their FED issued dollar bills to the bank, and demanded to get them exchanged to gold. However, as the value of the dollar was tied to the value of gold, the FED’s assets (gold bullions) should match their liabilities (outstanding currency).

 

The problem with Bank of Thailand is that among its assets are euros, yens, Australian dollars, etc., and these are now worth less (in Thai baht) so the total value of the bank’s assets has become lower than its liabilities (outstanding currency).

 

But basically all holders of Thai baht would have to exchange their Thai baht to a foreign currency, for this to be a problem. Highly unlikely, especially given the currency controls enforced by Bank of Thailand.

I guess a run on a central bank only happen if there is a run on the currency, like Soros did to the UK pound in 1992, but that will never happen to the Thai baht as the central bank sits on nearly $200 billion in foreign currency.

 

Is BOT deficit an indication that they are actually keeping the Thai baht artificially strong?

[funandsuninbangkok]

They are selling baht and buying dollars to try to keep baht lower for Thai exporters. Dollar went down / baht went up anyway. They lost. 

[janclaes47]

On 5/31/2017 at 5:10 PM, ExpatOilWorker said:

I guess a run on a central bank only happen if there is a run on the currency, like Soros did to the UK pound in 1992, but that will never happen to the Thai baht as the central bank sits on nearly $200 billion in foreign currency.

 

Is BOT deficit an indication that they are actually keeping the Thai baht artificially strong?

 

Seems you suffer of short memory

 

http://www.businessinsider.com/how-george-soros-broke-the-bank-of-thailand-2016-9

 

Here's how George Soros broke the Bank of Thailand

[lkn]

On 5/31/2017 at 0:10 PM, ExpatOilWorker said:

Is BOT deficit an indication that they are actually keeping the Thai baht artificially strong?

I would say a deficit is more likely to arise from trying to make the currency weaker (going against the market).

 

The value of the Thai baht is based on normal supply/demand.

 

The reason there is demand for Thai baht (outside of Thailand) is either because people import Thai goods or because foreigners invest in Thailand (a foreigner buying a condo would count as an investment).

 

If BOT wants to make the Thai baht stronger (which I doubt, because it hurts export) then they can do a few things:

 

1. Limit inflation, so do not increase the money supply.
2. Limit Thai baht flowing out of the country, which they actually do by requiring paperwork, but I think the motivation here is different than keeping the Thai baht strong.
3. Buy back as much Thai baht as they can to increase demand, which means selling out of their foreign currency.
4. Increase interest rate to attract foreign investors, this again is probably not something they would want to do because it also means it gets more expensive for Thai people to borrow money.

 

So back to the deficit, this came about because BOT was holding a lot of foreign currency when the Thai baht went up in value, so one could actually assume, that they tried to weaken the Thai baht by selling out of Thai baht and buying up foreign currency (increase the supply of Thai baht).

 

Though if we are given their balance sheet (starting/ending 2016) then it should be possible to see what they did related to foreign currency, and thus, we can guess their motivation from those movements.

 

So in conclusion: The deficit alone does not really tell us anything.

Edited June 2, 2017 by lkn