Here is an update of my first article about thai holding of US Treasuries. But with some goodies.
First a definition :
United States Treasury security is a government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt.
Treasury securities are the debt financing instruments of the United States Federal government, and they are often referred to simply as Treasuries.
The Bank Of Thailand is holding US Treasuries. But not only of course. However, there is an obvious correlation with its foreign currency reserves.
Regarding the fall in march of thai holding (from 39,7 billions USD to 26 billions), we should remain cautious (data are revised). But if confirmed, that would be an interesting issue because meanwhile the BOT’s foreign currency reserves continue to increase… I will follow up this.
Anyway : there is a correlation. The BOT has increased its reserves by buying (but not only) US Treasuries (to know more about the BOT’s foreign reserve, read here).
Now let’s add another data : the exchange rate USD-THB. 😉 (data from the BOT)
Watch out : prior to march 2008, we had… capital controls ! You don’t remember perhaps, but the Junta imposed capital controls in december 2006. The USD was falling like a rock. And the aim was to prevent hot money coming into the country, and driving the value of THB up (foreign currencies are coming in, they are converted in local currency, so demand goes up, therefore the value of local currency goes up).
Yes, at that time too the political obsession was to save the thai exports…. exactly like now. 😉 How ironic.
So my point : the chart before march 2008 is not relevant (because the exchange rates were “on shore”, decided by the BOT).
After this point, we find again the correlation : holdings of US Treasuries are increasing, THB is loosing ground versus USD (when the BOT buys US Treasuries, it increases demand for US Dollar, leading to an effect on the USD-THB exchange rate).
Don’t forget : thai holdings of US Treasuries are just one factor having an influence over the exchange rate.