Chart : US Treasuries, BOT foreign currency reserves and USD-THB exchange rate

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.

(data : source US Treasury and Bank Of Thailand)

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. πŸ˜‰ (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. πŸ˜‰ 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.

11 Responses to “Chart : US Treasuries, BOT foreign currency reserves and USD-THB exchange rate”

  1. 1 Fonzi 14 June 2009 at 1:34 am

    This is very interesting.

    So I was wrong in the other post.

    Thailand, according to the US Treasury, has $26 billion in US Treasuries, and, according to the IMF and BoT, it has roughly $120 billion in “convertible” foreign currencies. I am assuming a big chunk of that is US dollars, as the chief security, though I am sure other bonds and foreign securities are held. The breakdown isn’t clear. The gold and special drawing rights position are fairly negligible.

    Essentially, BoT is sitting on a lot of cash, which could be a good or bad thing, depending on the circumstances, such as inflation, which, in the current dollar environment, is a real concern.

    So, the question I have is then why can’t the Thai government borrow from itself to solve its fiscal budget crisis when its monetary and foreign asset position is fairly solid, for now?

    Many countries invest their foreign reserves. I don’t if Thailand has any prohibitions against using them for creating domestic demand, shoring up state fiscal imbalances, or what the RoI requirements are for investing foreign reserves.

    One concern I suppose is that if it sells dollars for baht that will effect the exchange rate.

    During the 97 crisis, the crisis came about, not because of the Thai government’s fiscal position, but because the BoT had to bail out private companies that had large foreign debt positions that they couldn’t repay, and BoT ran out of money.

    That situation doesn’t exist now.

    In terms of balance of payments, Thailand really only has to worry about the price of oil.

    So, TC, oh wise one, what the hell is going on?

  2. 2 antipadshist 14 June 2009 at 3:10 am

    the almighty Thai judiciary is coming to rescue the economy ! πŸ™‚

    The judiciary process was unable to prevent the present economic crisis, but it can solve it, Kasikornbank CEO Banthoon Lamsam said yesterday…

    Finance Minister Korn Chatikavanij addressed the seminar on the topic of “Thailand’s Economic Strategies”.

    Korn said Thais relied on the judiciary to resolve different political points of view even when it came to economic affairs, as witnessed by the Constitution Court’s recent approval of the government’s loan decree, which the business sector found reassuring.

    He believes the Thai economy will see better economic indicators in the fourth quarter but only if the political situation remains stable.

    The government’s expenditures have had to decrease in line with revenue, but if it is allowed to borrow the Bt400 billion as it wants to, it can spend more.

    but of course, why Korn must ever doubt almighty judiciary, the best friend of the elite ? πŸ˜‰
    (and especially of the “Democrats”)

    It’s not just the global crisis hurting Thailand
    Overall, political uncertainties, influenza and unsolved turmoil in the South are now prominent risk factors as far as the country’s economic outlook is concerned.

    so, as usually blamed are some “external factors”, not Abhisit’s and Korn’s own incompetence (or rather plain stupidity?) !
    and surely not the patrons and sponsors of Dems.

    although PPT is not so happy with gov. :

  3. 3 ThaiCrisis 14 June 2009 at 4:58 am

    The “26 billions” (a sharp drop compared to the previous months)in march have to be confirmed… We will get data for april soon. As for the BOT’s foreign currency reserves, it’s 117,5 billions USD actually (once gold, SDR and IMF positions are removed).

    The big question is : how much in USD ? Tarisa herself said “60 % of the reserves are in USD”. That was in may 2008… long time ago… And like I wrote before : we don’t have to believe her.

    The data provided by the BOT are converted in USD. The BOT says : “Foreign currency assets, in particular foreign securities, are converted to US dollar equivalent using New York closing mid rates.”… Currently the USD is going down versus other currencies, so mechanically it will increase the total foreign currency reserves, once converted in USD… Like a trompe-l’oeil effect.

    I don’t really agree when you say that many countries invest their foreign reserves (have you an example ?)

    As for Thailand, yes any move in this direction would have serious effects on exchange rates. Korn, and all thai politicians, would love of course to use this mountain of cash (they are like the wolfe of Tex Avery). But even in Thailand, the Central Bank does not obey, and seems reluctant…

    On a more broader scale, I believe all central banks around the world are like the rabbit in the headlight…. they are paralyzed. Can you imagine the result if a few central banks, in Asia for instance, start to sell their US treasuries…. ! ?

    For that matter, the USA hold them by the balls. In a way.

    You remember the theory of M.A.D (Mutually Assured Destruction) ? That was the good old times of cold war… Well… on the monetary level, I think we have currently a big M.A.D.

    No one is willing to pull the trigger first. And certainly not central bankers (think about Trichet, Tarisa… all sad clowns, all perfect clones, all following the same text books, all prisonners of their own mind and of the system).

    But the irony is : at some point, eventually, someone will have to shoot first… That’s the terrifying part : people assume that because the game was played for decades… it will continue for eternity. That’s wrong.

    As for the thai balance of payments… Positive sure, but don’t be fooled by the numbers. The imports are crashing faster than exports and oil is cheap compared to last year… that’s all. My point : we could get a totally reversed situation quickly… Add to the current situation… oil prices at 150 USDS like we had last july… the balance would simply crash !

    We are walking onto eggs… True for Thailand and actually the whole world.

    Unfortunately, we are following -I think- the bad scenarii : a long L shape recession, prelude to major events (collapse of US bond market, inflation, run on the dollar ?) The governments around the world are -successfully- buying time. Huge forces are working against each others. It will take time.

    It’s a roller coaster that will take years.

    More than ever, it’s clear, I am pessimistic… πŸ˜‰ As an european, I think I have a cultural advantage… the sense of emergency and inevitability when confronted to a dark sky… The 30s… Munich… At that time, we had many dark clouds in the sky, prelude to major events, but people didn’t want to see, to understand.. We know what happened after…

    For that matter, the americans are way behind… and in Asia it’s even worse. They just don’t understand.

  4. 4 Lloyd 14 June 2009 at 5:54 am

    What is not considered here is the forward options and subsequent future positions taken against the BAHT and USD, this is possible why the BOT is taking its stand.

    Any country that has strong USD reserves is in my opinion “buggered” as the true extent of US borrowing and deficit is unknown in the current context. I believe Chine knows this full well but is using its “position” to gain political leverage.

    I believe the true value of the BAHT in the current climate is about 15% less than where it is now, USD, EUR and GBP, such a shift when it does occur could be in the region of 25% or more.

  5. 5 antipadshist 14 June 2009 at 6:38 am

    some analysis on A. Sent. :

    Markets Float on a Tidal Wave of Cash

    Fonzi made a logical question, which puzzled me too already for a while: “why can’t the Thai government borrow from itself

    I may add – as well as some Thai giant corporations – like CP anounced “back to original investment planes” recently, which indicate more than hlf of its 5.5 bln investments planned to be made abroad, not within country.

    however may be such a question is more like a rethorical.

    taking into consideration the “pure” adn “clean” (also “transperent” and “honest”) stance of the so called “Democrat” party – it is quite understandable why gov. doesn’t do that: it want’s to PROFIT in crisis !

    and what can be more profitable than borrowing abroad for “stimulating the economy”, then “share the cake”, then blame the inevitable failures on the severity of crisis (no doubt, it can’t be over-estimated) – and in the end … let the taxpayers pay off those debts. πŸ˜‰

    “slf-sufficiency” somehow doesn’t come into play here – although it would be very logical to employ its principle in this situation and try to at least reduce the dependence on the borrowed money.

    another possible explanation could be – that this borrowing abroad is a part of a much larger scheme. because it is not such a big secret anymore that usually loans are provided on certain conditions. like IMF is well known for such. and ultimately it comes dearly to those countries who borrow from IMF !

    watch this video :

    Borrowing into submission?

  6. 6 ThaiCrisis 14 June 2009 at 6:39 am

    I have already written about forward positions (read here).

  7. 7 antipadshist 14 June 2009 at 7:20 am

    here is another source, about WB :

    World Bank generous to a fault

    With such streamlining of loan and grant approval, there’s an even greater chance of corruption escaping detection…

    In effect, then, IDA funds are vulnerable to fraud and corruption from all directions. First, safeguards aren’t in place at either the country or the project level. IDA funds aren’t protected with preventive measures that systematically flag signs of improprieties…

    The IEG has made it clear that the bank isn’t equipped to ensure that its billions in IDA aid don’t wind up in the wrong bank accounts

    The bank has been very adept at promoting the impression that corruption is a problem now being addressed. This is, quite simply, not the case… there isn’t any discipline, no real deterrent, and no penalty for criminal conduct. Even more notable, for the most part, the IEG report exposing this has gotten very little attention from those who could do something about it.

    so, those who know all this stuff (and I bet Korn does know it too well !) – they realize that it is too bloody EASY to make it happen that money “wind up in the wrong bank accounts” and one must be really stupid to miss such a golden chance. πŸ˜‰

  8. 8 Fonzi 14 June 2009 at 8:57 am


    Here is an article on Saudi Arabia.

    Here is one on China.

    I am also assuming that sovereign wealth funds are using foreign reserves to invest also.

    I just read an article that said for an emerging market economy, it should have foreign reserves equivalent to 6 months of imports just in case of a nightmare scenario.

  9. 10 antipadshist 15 June 2009 at 3:00 am


    that video was … back in Nov 2008 !

  10. 11 antipadshist 17 June 2009 at 2:15 am

    BRIC summit :

    Talking the dollar up while plotting to get out of it

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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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