Foreign currency reserves, + 17 % in august : the Bank Of Thailand on a crash course

The chart speaks by itself.


Foreign currency reserves (+ forward positions) reached 138 billions USD at the end of august, an increase of 18 % y-o-y, compared to august 2008 !

But meanwhile… the USD is losing ground versus the THB…

Let’s look the reserves and the exchange rate USD-THB.


(Source Bank Of Thailand)

So let’s summarize :

-The Bank Of Thailand is buying US Dollars (it’s a guess, we can’t be sure, foreign currency reserves are converted in USD, the BOT does not give the composition of its reserves), in order to curb the increase of the THB versus the USD. Why ? To save the thai exports (on this issue, there is no doubt). This is why overall, we can affirm that the BOT is buying USD indeed.

-Exports are being crushed by the global crisis (falling demand)… If you add the exchange rate problem… It can compound the problem.

-To illustrate the issue : a thai company sells 1 USD of goods… With a low THB It will get for instance 40 THB… It will “feel” much richer than with a strong THB (It could get only 30 THB for the dollar)…

-But despite this suicidal move (the famous “beggar thy neighbor” policy), the THB is still increasing versus the USD… Proof that downward pressures against the USD are high.

Thailand behaves exactly like all other asian countries (and BRIC countries, read here).

It’s a pathetic short term view… But the political pressures are just too high. Central bankers and bureaucrats are just a bunch of panicked cowards… “give me 5 minutes more mister executioner”….

They don’t have the energy and the courage (and the intelligence) to try to build a real economic growth… instead, they rely on accounting tricks and other tour de passe-passe.

Why do I use the word “suicidal” ? What would happen… if the USD continues to fall ? The Bank Of Thailand will be among the suckers, the mega suckers, with a mountain of worthless US Dollars… Sucker number one would be of course China. πŸ˜‰

Last but not least… here is my botte secrΓ¨te : the chart with foreign reserves and thai holdings of… US Treasuries ! Unfortunatly, with data until june only.


(source US Treasury)

Correlation ? You bet. πŸ˜‰ So let’s wait for august data.

Will the Bank of Thailand (and the whole country) be… a double sucker ? Buying US debts in US dollars. πŸ˜‰

Wait for the next episode of this Great Drama.

3 Responses to “Foreign currency reserves, + 17 % in august : the Bank Of Thailand on a crash course”

  1. 1 Jim 4 September 2009 at 11:29 am

    Dollar is set to rise very quickly, as Fed will be forced to stave off inflation by raising rates as quickly as they lowered them.

  2. 2 ThaiCrisis 4 September 2009 at 1:09 pm

    Jim : well that’s the ultimate Pascal’s wager… The 23836 trillions USD one. πŸ˜‰

    And I would probably agree with you… in a normal situation. After all, this is exactly what happened with Volcker in the 80s, right ?

    But 2010 won’t be 1983. The FED can’t increase rates. Because if they do so, the whole US economy would implode… quicker. It will in any case, but with high rates it would be very fast.

    You can’t raise rates when you are litterally burried under debts. You can’t raise rates when there is no more any political ethic in the US (and virtually all other countries), when the only remaining tool for politician is to promise free money, no pain, free healthcare, bailouts, happiness (hum… I start to write like Obama πŸ˜‰

    The hammer and the enclume… The leprosy and the cholera… Choose your plague.

  3. 3 ray 4 September 2009 at 6:34 pm

    thai crisis

    u hit the bull’s eye.
    option one.. cheap money devalue the dollar.hyper inflation.

    option two;; increase interest rates to fight inflation and the whole economy comes crashing down.

    everything is going to be paid by free money ( monetizing the us dollar).. there is no free lunch and as for usa the bil is comimg due very soon.’

    interesting and very scary times.

    for jim..
    the value of us dollar doen not depend on usa anymore but on china/japan/india / middle east countries.

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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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