Chart, BOT’s reserves, the case of the forward positions : the coal mine canary

I can hear you : what ? ! Another chart about the foreign currency reserves of the Bank Of Thailand, 2 weeks after the previous one ? 😉

Yes. And believe me : it’s not over.

People are puzzled with the exchange rates. Some currencies are falling at light speed but… the THB is not moving a lot, particularly versus the USD (read here). Or more precisely : the THB is moving, but slowly, compared to other currencies.

So why is it important to study the reserves and to understand what the BOT is doing ?

The THB issue is linked to the foreign currency reserves. These reserves are a consequences of the BOT’s currency policy but also the tool to achieve or help to achieve (more or less) this policy. How come ? Simple. By selling and buying.

(Yes, it’s called “interventions”. Sorry, “currency management”. 😉 The BOT did it. And continues to do so, despite pathetic denials.)

For instance, if the BOT buys a lot of US Dollars (= by selling THB) the USD will go up, and the THB will go down. Offer and demand.

So overall, the reserves are an indicator, like a thermometer.

To summarize quickly the situation :

-the BOT was buying USD… until beginning march 2008… when the BOT removed capital controls. And when the USD stopped its free fall.

-until march 2008, the reserves and the forward positions were increasing together (the second adding more fuel to the first). Logic.

-the “peak reserves” was reached end of march, with a total of 110 billions USD. Since then, we are flat. 107 billions USD in december. So apparently, there is no pressure, no big movements.


(Source BOT)

But something has changed. A lot. The amount of the net forward positions. From 25 billions in march to 7 billions now.

What does it mean ? Official definition :

Forward positions = Bank of Thailand’s forward obligations to buy (long) or sell (short) foreign currency against Thai Baht.

For that matter, they are like a “peek” at how the reserves will behave in the future.

Here the future = between less than 1 month to 1 year maximum (the maturity). The website of the IMF gives us the details.


Here (BOT’s figures for october), we see that 50 % have a maturity up to 1 month. Only 25 % of are up to 1 year.

Let’s take an example : in january you have 100 billions USD in you reserves. Plus a net forward positions of 10 billions with a maturity of 3 months. Let’s assume you don’t touch your reserves… In april, the new total will be 100 billions + 10 billions (obligations you took in january) = 110 billions.

This is why we can speak about “peek” into the future.

In order to study those positions, we will take the net amount (= buying – selling). It’s easier. And anyway, the BOT doesn’t have -yet- a lot in short positions.

So to summarize : the net forward positions = the net amount of foreign currencies the BOT will buy in the future (against THB).

Here is a chart.


We see again the “peak” (march 2008) of the net forward positions. Since then, I think the picture is clear : we have a fall of the amount of net foward positions, and a fall of the percentage of those positions compared to the total of foreign currency reserves.

In other words, from the peak of 24 billions USD (25 % of the total reserve at that time), we are now at 7,2 billions USD (6,9 % of the total).

What does it mean ? The Bank Of Thailand reduces, almost week after week, its future positions, its commitments to buy foreign currencies (probably USD) against THB.

Let’s now have a look on the details per maturity (source IMF).


But, we shall be cautious :

-we don’t know which foreign currency the BOT is buying (for the forward positions).

-we dont’ know the composition of the foreign currency reserves (it’s a secret). Tarisa, BOT’s governor, said last may “about 60 %” were in USD. We don’t have to believe her.

-all the figures given by the BOT are converted in USD. Mark to market. Therefore, for the weekly reports, all figures are accounted with the exchange rates of the current week…

-beware of optical illusions : since the BOT said that the reserves are “about” 60 % in USD… And if we assume that the other 40 % are in Euro, and if the exchange rate USD-EUR is going down (which is the case right now), then the part in Euros of the reserve (accounted in USD) will of course increase.

We could see therefore an increase of the total reserves accounted in USD… but it doesn’t mean mechanically that the BOT is buying more USD.

We had a perfect example of this between week 05/12 and 12/12, when the total foreign currency reserves went up from 103,4 to 104,8 billions. It was probably just because the Euro went up against the USD.

-Beware of the… context (global and local). This is not a perfect and unchanging world, like any central bank would wish it was. For instance : after a dramatic fall, the USD started an upward trend last summer. Globally.

On the local front : foreigners are leaving the Stock Market (SET, read here). This is not supportive for the THB (you sell your stocks, in THB, then you exchange those THB into foreign currencies, and then you get out the country). etc. etc.

Okay, that’s very nice, you could think, but what the hell is going to happen to the THB ?

Due to the forward positions, due to the fact that since the peak in march, the reserves didn’t increase… I would say that the BOT has been a seller of USD during the previous months… To support the THB (versus USD).

But the BOT is like all the other central banks : they are surprised (horrified I would say) by the speed of the economic downturn. And its scale.

Therefore, I’m not sure we should take the actions of the BOT until now as a sign of what they would do tomorrow. I believe they could change their mind quickly.

Until now, the BOT was very adamant to control the movement of its currency. And refused to cut interest rates like crazy, despite several calls from the previous governments and even calls for devaluation.

The keyword, the motto was : stability. It’s their obsession. Was.

But we know now that the political pressure (new government) + the speed of the economic crisis + the fact that the thai exports are going to suffer… all this leads to one solution : ease the pressure by allowing the THB to go down.

It’s the asian bias. China, Japan… they have all started to intervene… They want to stop (and reverse) the appreciation of their currency versus the USD. Because it’s killing their exports (very true for Japan).

And to kill exports in an export oriented economy doesn’t sound very good, right ? 😉

I think the BOT will -at one point- follow the same path.

Therefore, I think the THB will go down versus USD.

-But hey ! And this is the true frightening part… USA are doing exactly the same (but for different reasons, not exports). The USD is condemned to loose value. It’s inescapable (zero interest rates, massive printing of money, mountains of debts, etc.)

So you start to understand the problem : we have a freaking race toward zero, a race toward the bottom. What could happen if all the countries in the world see their currencies going down ? At the same time ? It’s insane.

-the foreign currency reserves shall be observed closely. Because they are the result of a currency policy, and one of the tools to achieve this policy (despite the denials of the BOT).

-the forward positions play the role of the coal mine canary.

-we know for a fact : the BOT has stopped last march to buy foreign currency (USD) on a massive scale. The continuous drop of the net forward positions is the proof.

-it means that one (among many others) technical support for the USD versus THB is weakening. But it’s only 1 factor of the equation. And it could change.

[ You want to know more ? I wrote an article a few weeks ago to explain the tie between THB and USD, and why the THB doesn’t move a lot, compared to other currencies, why it seems insulated from the big deleverage, from the current tornadoes on the market… read here and there ]

15 Responses to “Chart, BOT’s reserves, the case of the forward positions : the coal mine canary”

  1. 1 FDL 22 December 2008 at 1:51 am

    The USA is deliberately weakening the US dollar . . tons of government loans and tons of US dollar currencies printed to flood the world. A weaker US dollar would allow the Obama government to reduce its trade deficit . . . which is necessary if USA is going to make any headway towards reducing its $10.6(check out US National Debt Clock) trillions of national debts.

    But exporters China, Japan, Europe and Asia (Thailand among others) dependency on the US market is a habit deeper than heroin addiction. Nearly all the exporting countries would prefer USA to keep borrowing if only to keep their export engines running. Only recently Japan announced that they could not tolerate further strength in the Japanese Yen . . . see? China too and probably worse!

    Will Thailand allow its Baht currency to appreciate vs. the US dollar?

  2. 2 FDL 22 December 2008 at 2:13 am

    BTW US national debt is only one/fourth of US private debt. USA’s total public and private debt at end of 2007 ( was $53 trillion, or equivalent to $175,000+ per capita.

    That was at the end of Y-2007. The total US public and private debts at the end of 2008 is probably $65 trillion+.

    No wonder Bernanke/Obama worries about a US depression threat.

  3. 3 James 22 December 2008 at 9:00 am

    I’ve been saying for a long time, the Baht needs to be @ at least 42 to the dollar. The U.S. is pressuring Asian central banks to maintain their currencies strength at the wrong time; no way are they going to let New York and London bankers tell them what to do after this economic disaster. I’m betting an a fast-tracked regional currency program for China and S.E. Asia by 2012. If not, let the trade wars begin.

  4. 4 ThaiCrisis 22 December 2008 at 9:32 am

    You’re right : it is a trade war. And it’s going to accelerate (look at the figures of exports for november).

    All asian countries will choose the selfish way…. debasing currencies to try to save theirs exports. It’s written.

  5. 5 ray 22 December 2008 at 12:37 pm

    hi thaicrisis. in such a scenario whuch currencies do y think will debase the least? in last 48 hrs the euro gained quite a bit. what about danish and norwegian krones. ? their economy is quite strong.
    the norge have their gas and natural resources so i think nok should do good? u r danish right? what do u think of scandinavia economy? i am asking because i do a lot of business with scan people so i am quite inetersted.
    as for thailand things look bleak because in 1997 crisis export/tourism pulled us out of the mess but this time around our customers are in a deeper mess!!
    the 25% drop in exports reflects reality. closure of airport will not impact the exports much but it will cut tourism. thailand needs to pay attention to te agriculture sector. people gotta eat!

  6. 6 antipadshist 22 December 2008 at 10:20 pm

    well, “dollar devaluation” (or “devalue dollar”) is a phrase which dominates the headlines nowadays. there is no even need to provide links – Google News search provides plenty of articles.

    so, it is not a big secret anymore that it is gonna happen. some say that it is gonna be up to 90% devaluation (FDR devalued what – 40% back in 1933 ?)

    and naturally – the “devalue” word is used in regard to many (if not all) other currencies.

    therefore, I guess THB can’t be any different.

    it is an interesting racing: all the currencies competing with dollar – which will devalue more, dollar against other currencies, or currencies against dollar.

    dollar screwed up the whole world.

    there was a rumor that actually on the G-20 meeting in NY behind the curtains there was a negotiation to devalue all the major currencies at the same time. perhaps that’s the real thing which is gonna happen.

    sooner or later, even though strong local currency harms the exports, countries are gonna dump dollars… it is inevitable ! because they simply can’t afford continue buying dollars, or even keeping those dollars already bought.

    therefore I think that it is a good thing for Thailand – to sell dollars. although I doubt that moving into other currency(ies) is gonna be any better (if at all).

    perhaps what is wise thing to do is – use those dollars or whatever foreign currency reserves to buy some REAL commodities, as may be oil (since it is so damn cheap right now!), or other energy resources, some whatever valuable stuff (well, Thailand has a lot of food – I guess it wouldn’t buy that elsewhere) or even … gold ! because it is another talk – that many countries are gonna switch to a gold standard. there was a news report of China planning to buy 4000 tons of gold ASAP.

    as for what will happen to Baht …

    it is horrifying projection – if BoT will devalue it as well. imagine – devaluing Baht by same 90% as dollar is expected to be devalued? that would mean – of all the assets and savings people have now – they will actually have … 10% from what it is now !

    so, of course BoT and whoever authorities are not gonna tell the real picture to public – otherwise what a panic it will create and rush to withdraw the money from banks !

    however I think most of banks already started to limit the withdrawal. several times I wasn’t able to withdraw amount over 10’000 baht from ATM. in some places – even over 2’000 Baht.

  7. 7 ThaiCrisis 22 December 2008 at 10:33 pm

    It’s funny what you say about ATM withdrawls. Some people reported the same problem, see ThaiVisa forum.

  8. 8 antipadshist 22 December 2008 at 11:07 pm

    well, it is funny only in the sense that it is sort of a coincidence (that many others mention it too).

    however when one needs money URGENTLY – say, for a business transaction, especially when a customer has transferred to you certain sizable amount and expects you to deliver his order ASAP … that is not funny at all !

    I do not know – whether limitations are only for cases when foreign credit / card is being used (in my case it was so) or it is as well in cases for local bank accounts. but apparently it is a fact already.

    the cases described on TV are familiar to me. in one Kasikorn bank branch I had similar case: ATM gave message that only 2000 Baht withdrawal is allowed. I asked some stuff – they explained that “oh, it is because in this machine there are only 100 Baht bills – please go over there across the road, and that machine has no limits”. I did exactly that – yes, that machine didn’t have such message (only 2000 Baht withdrawal is allowed) – but … it didn’t let me withdraw money at all either. the message was : “data on card is incomplete, please contact issuing bank”. which is total crap – since my issuing bank has previous day replied to me that they have no any limitations and my card is alright.

    only later on I’ve figured it out (somehow reminded about some rumors I’ve read somewhere few weeks back) – and tried to withdraw less than 10’000. well, actually I recalled that few days before that I was able to withdraw 8000. so, for amounts 10’000 or less – card works without any problems, no any silly messages “data on card is incomplete” !

    so, after reading this thread on TV I guess – perhaps it is true after all, that Thai banks has started to limit withdrawals. I do not think it is related to the stricter regulations due to whatever fear of forged cards. most likely – they are trying to prevent / control (or at least slow down?) the currency speculation. because obviously when foreigner withdraws money from his foreign bank with his card in Thai Baht – what happens is the currency exchange transaction !

    and since currency exchange rates now are unpredictable – there is a certain risk involved.

    so, in this regard it is quite understandable that Thai banks (or perhaps even on BoT level?) are trying to control it.
    same thing happened already with gold: Thai Gold-traders association has already stopped selling gold on weekends, and even on week-days they imposed limit of no more than 10 Baht (in gold bars) per person. it was in media.

    therefore, it won’t be a big surprise if Thai banks has employed the same tactic towards the foreign currencies !

    although it would be interesting to get a results of some local people trying to withdraw money from their local bank accounts (not foreign – no currency exchange) – are there any limits ?

    I suspect that there are already some. perhaps majority of population still do not realize it. and naturally Banks officials and clerks might be instructed to deny it – in order to prevent the panic. or may be they are naturally ignorant themselves ! 🙂

    well, if somehow the facts about possible devaluation AND withdrawal limits will leak out into public – there is gonna be a huge panic, no doubt !

  9. 9 ThaiCrisis 22 December 2008 at 11:43 pm

    Well, I think we should remain cautious : there are not enough reports yet. If it was really something new, we should have more feedbacks. But anyway, I will do myself some tests next week, with several cards, local and foreign as well. One report on ThaiVisa should be checked : the sign “due to BOT regulations” blabla, someone said he saw on an ATM of TMB (Thai Military Bank).

  10. 10 antipadshist 23 December 2008 at 3:24 am

    PM, economic team to discuss with Bank of Thailand this week

    “Prime Minister Abhisit Vejjajeva and his economic team will meet Bank of Thailand (BoT) Governor Tarisa Wattanagase this week to consider common action in response to the economic challenges facing the country, according to incoming Finance Minister Korn Chatikavanij.

    Mr. Korn said the new government had not yet set a clear monetary policy because it would discuss the matter with the central bank first.

    The minister said he could not yet answer whether the government’s policy would be in accord with that of the central bank.

    Previously, it was reported the new government would press the BoT to cut the policy interest rate further, allow the baht to weaken to boost exports, inject liquidity of commercial banks into the system, and postpone the adoption of capital requirements under the Basle II agreements.

    He said the recent decision by the central bank to reduce the policy interest rate sharply by 1 per cent showed that the BoT’s analytical approach on economic problems is in conjunction with that of the government.

    Mr. Korn pointed out that the Bank of Thailand had given more importance to economic expansion than to inflation concerns.

    At the same time, the Ministry of Finance had not only targeted solving the economic woes by stimulating gross domestic growth, but also intended to restore investor confidence as soon as possible.

    Government policy, as evidenced by ministry action, would also attempt to accelerate budget spending quickly and as much as possible, he said.”

    well, while it is not sure about weakening of Baht (although likely) – one thing is sure: Korn will take a very good care of the budget spending ASAP.

    wow! why I am not surprised?

    all the mega-projects come handy. 😉

    no wonder – how much squabble is going on event within Dems ranks about yummy ministerial positions !
    no wonder – that CP has “donated” 80mln to push its guy into government!

    the ACCELERATION of ASAP budget spending –
    what a Merry Xmas in the “Magic Kingdom” ! 😀
    (as TC calls it)
    I understand now why Suthep and Co were so happily singing karaoke a day before. and it looks like Kasit (with his Dems buddies) is gonna have a lot of more “fun” : “free food, free music”. add to that – entertainment (ala Poseidon) …

    why, I can understand very well Abhisit’s & Korn’s eagerness to meet with Tarisa and explain to her the policy of new government !

  11. 11 nic 23 December 2008 at 5:25 am

    during all last week the money changer in my soi had “no cash” until afternoon. n.

  12. 12 Lion Tamer 23 December 2008 at 7:16 am

    @ antipadshist – did you try and pull out multiple 8,000 ATM withdrawls in succession? Some machines won’t let you pull out 16,000 in one transaction, but if you do 2 withdrawls in succession of 8,000THB, that’s allowed.

    @ Thai Crisis – Yesterday just pulled 60,000THB out a local BKK ATM using my local BKK bank account. (three 20,000THB withdrawls).
    In November I pulled out 100,000THB from my a local bank account and wanted it in in USD. Funny thing was the bank didn’t have that much USD. It took 3 days for them to order it and complete that transaction. That seemed amusing to me that a major bank doesn’t have $3,000 USD on hand.

    Do you recommend I pull out 90% of my Thai baht and put it in gold? 😉

  13. 13 Lion Tamer 23 December 2008 at 7:53 am

    @ ThaiCrisis – Forgive my ignorance, but how is the manipulating of the currency being funded? Not all the long and short selling trades can be profitable for BOT, therefore who is paying for the loses?

  14. 14 ThaiCrisis 23 December 2008 at 8:04 am

    -Lion : there are no… short. Very small amount, compared to the long. Look at the details (on the long term, doc created by the IMF). This is not trading to make money (well I don’t think so 😉 ). It’s just a tool (among other) for the BOT to manage its reserve.

  15. 15 Charles Frith 26 December 2008 at 3:13 pm

    @James Your assesment of interegional currency cooperation is the same as mine. Confidence for that will come shortly.

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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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