This is what Miss Tarisa, governor of the BOT (Bank of Thailand) said yesterday about the capital controls : “We must adopt this temporary measure because we cannot allow the free market mechanism” (Nation).
I believe from time to time it’s important to repeat some basic facts, regarding the situation of the thai currency since last december.
As you may know, the BOT imposed last december some capital controls. At that time, the fast appreciation of the THB vis a vis the USD was seen as a risk.
Since then, even though the BOT announced many exemptions, the core of the capital controls remains : withholding reserve requirement (30 %).
This situation has created a distorsion on the currency market, with 2 exchange rates : on and off shore. As of today for instance, 1 USD is quoted 31,5 THB (off shore), but 34 THB here in Thailand.
It’s easy for the BOT to manipulate the exchange rate on the on shore market. Or “manage” if you prefer… Thai exporters are paid in USD, then they have to exchange those dollars (that the BOT is buying against THB). Therefore, the BOT’s USD reserves are ballooning (72,5 billions USD in august, 77,6 billions USD last week of september !).
So, again, as an investor, you should not forgot this fact.
If China has a total control over its currency, grossly undervalued vis a vis the USD, if Japan is also manipulating its currency (through very low interest rates, fuelling the yen carry trade)… well Thailand is achieving the same goal (keep a weak currency, in order to boost the exports) through other means.
Don’t forget the quote of Tarisa : “we cannot allow the free market mechanism“…
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