International reserves : BOT mulls lower dollar weighting

A very interesting article about the international reserves and the way the Bank Of Thailand manages them.

Interesting because of course the composition of those reserves are top secret.

For that matter, it’s necessary to take with a pinch (a big one) of salt what the central bank is saying.

The Bank of Thailand is considering gradually readjusting the currency blend of its international reserves again – after it had first done so in 2002 – for long-term objectives, not short-term trends.

“We would not change it [the reserve structure] because of the currency trend – by unloading the dollar when it depreciates and hurrying to buy it when it is stronger,” senior director Pongpen Ruengvirayudh said last week.

The remix will be based mainly on economic fundamentals rather than the fluctuating value of the greenback, she said.

A rather idiotic reasoning. The trend of USD is everything. USD is an economic fundamental. If like many other institutions and individuals around the world, the BOT thinks that the USD is likely to continue its decline… for core reasons, then the BOT will do like other : unload.

If not, then the BOT should shut up and continue to buy USD…

It’s like if they want to say that they believe that the USD is doomed, but their actions would not be linked to the faith of USD, but to some “long term objectives”.

It’s political correctness applied to the matted world of central banks. 😉

The US dollar will be progressively reduced and other currencies increased to fit with Thailand’s trading partner structure. The Kingdom’s exports to the US have declined, while trade payments in dollar terms have fallen.

The central bank will act in accordance with long-term prospects, not depending on the cycle of the dollar, she emphasised. The dollar trend has only a slight impact on the decision.

The central bank has steadily unweighted the dollar in its foreign reserves since 2002 after it dropped the fixed exchange rate in 1997.

Another blatant lie. In 2006-2007, the BOT bought dollars on a massive scale ! To curb the appreciation of the THB, and to save the Private Exports. Look at the chart… There is no discussion. And this policy was heavily critisized because of its huge cost (plus the bond problem, “sterilization” process, read here).

The central bank no longer needs to hold lots of dollars under the current floating exchange rate regime, unlike during the era of the basket of currencies, when it needed to collect dollars in large amounts.

“We’ll change it in accordance with the country’s economic structure. Don’t expect that when the dollar is up, we’ll turn back to hold the dollar like we did before,” she said.

Earlier, Governor Tarisa Watanagase said the central bank has been steadily dumping the dollar until now it is lower than other central banks’ average level of about 60 per cent.

Shipments to the US have slumped from 21 per cent to 17 per cent of the Kingdom’s total exports after traders turned to other markets. (Nation)

Again, what are they trying to say ? This idea that international reserves must be linked to the structure of exports and the trading partners is… rather new.

So if Thailand exports products to Zimbabwe and is paid in Zimbabwe Dollars, then Thailand should keep a stash of Zimbabwe Dollars in its international reserves ?

My analysis : it’s PR bullshit packed into confused rhetoric. The BOT wants to stop buying USD (at last !), but like other central banks if they say it too loudly then there is a risk that the USD would go down even quicker.

And meanwhile, the oil (paid in USD) is going to make a huge hole into the trade balance of Thailand (it started already, with a trade deficit of 3 billions USD in the first four months)

Bottom line : THB could go up. But the trade deficit could alleviate the upward pressure…

The game remains open. 😉

2 Responses to “International reserves : BOT mulls lower dollar weighting”

  1. 1 Ueby_Nogami 27 May 2008 at 8:42 am

    It is really so, but some aspects are missed or disputable. I’ve looking for this information for a long time! What more can I find about it?

  2. 2 thaicrisis 27 May 2008 at 9:08 am

    Please, be more specific. What are you looking for ?

    And what are the aspects “missed or disputable” ?

    If you don’t agree with my views, please explain yours so the discussion can be profitable.

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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.

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