Archive for the 'Currency' Category

Chart, foreign currency reserves and US Treasuries : “Gimme more”

Britney Spears ? Nope. The Bank Of Thailand.

Time passes and the BOT pursues with a striking constance -like all the other asian central banks- their suicidal mission : buying US Dollars, mountains of it, and worse  US Treasuries, AKA US debts in US Dollars, in order to save their pathetic exports figures by keeping a weak exchange rate for their currency: it’s the Beggar thy neighbour policy.

US debt in US dollars ? Talk about a double whammy.

And meanwhile… the smart guys (asian too) are buying gold.

Talk about major schizophrenia.

Let’s update our charts.


“Gimme more of less”. What to say else ? More USD and more US Treasuries (US debts).


Yes, the proper word is : “correlation”. This chart is screaming… The Great Correlation.


The key word is : “stability” (apparent, virtual). That’s the fantasy of the thai central bank… But it doesn’t work this way. Because if indeed it’s possible to fool all the people all the time, at one point you face laws of physics

We can see a lot of efforts (buying a lot of USD) in order to keep the exchange rate USD-THB stable.

We are deep inside the Rabbit’s Hole, Wonderland. It’s the lala economy.

Sustainable ? We will see.

(Source Bank Of Thailand, and US Treasury).

PS : Sorry to repeat myself, over and over… But if you’re looking for some light inside the tunnel… Point your browser to Mish Blog and Calculated Risk Blog. Those people have understood it all… since at least 3 years… Yes, the “crisis”, the “recession”, the “depression” whatever you wish to call it is nothing but new… It was documented, predicted, announced, analysed, dissected… But of course, you didn’t get the chance to read it on Bloomberg or the Wall Street Journal.

Don’t be a clown.

Break your chains.

Exchange rate Drama : more non sense coming from so called “exporters”

The Exchange Rate Drama is unfolding. And some lala businessmen are crying like babies.

Thailand’s exports are unlikely to achieve 10% growth next year if the government leaves the baht’s appreciation unchecked, exporters warn.

“Ongoing baht strength will harm Thai shipments and weaken our competitiveness,” said Pornsil Patchrintanakul, deputy secretary-general of the Board of Trade.

Mr Pornsil was one of a group of leading executives from more than 50 trade associations who on Monday met with Veerasak Jinarat, the vice-minister for Commerce.

The baht, quoted Monday at 33.35 to the US dollar, is currently trading at a 14-month high and is up 4.4% since January.

Exporters said the baht has appreciated significantly faster against the dollar than competing currencies such as the Chinese yuan or the Vietnamese dong, hurting Thailand’s trade competitiveness. (Bangkok Post)

Who is Mister Pornsil ? A guy who has a very simple view of business : rewards and no risks.

His only ability to sell something outside Thailand is to rely -not on merit, talent, intelligence, better products, courage and why not luck-… but on cheap currency.

In the ideal and lala world of Pornsil, international trade would be someting like that :

-Hello mister foreign buyer. I sell to you 1 kilo of rice, 1 t-shirt and 1 air conditioner… let’s see total cost 200 USD… Special price for you. I will get 252453456533 millions THB thanks to the exchange rate. It’s magic. Yeah that will do. I could buy 17333 condos for my daughter, my nephew, my maid and mia noi. And maybe 6536 BMW cars. Pink color. Okay khrap ?

When the USD – which is the only currency that matters as far as exports are concerned (read my article here)- when the USD is falling… then small fry people like Pornsil start to freak out.

Not even 1 minute, Pornsil is able to think that a lower USD will lower the huge oil bill Thailand has to pay every month, and the bills for many other raw materials and parts imported. And therefore, will lower the costs of many businesses… Hence, the costs of exporters !

I mean it’s Economy 101. Minus 101 should I say. First grade school level. But obviously, it’s too complicated for Pornsil’s 2 neurons brain.

Furthermore, Pornsil is unable to understand that if his pathetic export company is selling less It’s not because another country can give a better price thanks to a better exchange rate… But instead, because DEMAND (solvent demand) HAS BEEN REDUCED… The crisis, hello ? The recession ? Oh my god… I forgot that Abhisit told us that the economic crisis was over. My mistake. One point for Pornsil. 😉

Again, it’s way too complicated for all those clowns.

Last but no least, I would like to refresh your memory, with a (now) famous statement from Tarisa, our dear BOT governor. January 2009. Like an eternity away.

“Comparing the baht against the dollar does not represent the whole picture.”

Cheers Tarisa. You’re a winner. 😉

Dance of the suckers : thai Central bank “intervenes” to curb THB gains

We had an interesting string of events this week :
-dollar was hammered
-gold shot up

… and

Asian central banks said to be intervening in currency markets overnight by buying dollars included South Korea, Hong Kong, Taiwan, Thailand, the Philippines and possibly, Indonesia, according to analysts. (Reuters)

A pathetic fart. And the perfect Dance of The Suckers.

And indeed the Bank Of Thailand does confirm :

The Thai baht, Asia’s fourth best-performing currency this year, is rising too fast this month and the Bank of Thailand is taking action to slow its rise, an assistant central bank governor said on Thursday.

‘Somedays its strength is beyond economic fundamentals,’ Suchada Kirakul told reporters. ‘The baht is strong and we are still taking care of it.’

‘Our economic factors are not as good as others’, so we (our currency) does not need to rise as fast as theirs’,’ she said. […]

The BOT has been in the market frequently in recent weeks to curb baht gains, but the currency has climbed fast after breaking 33.50 — a level which the market suspected would trigger intervention. (Forbes)

First, you’ll notice : they spend a huge amount of energy to convince us that the Recovery (hats off) is there, but… meanwhile they tell us that the thai economy is not as good as others… And therefore, cry baby, the local currency should not increase versus USD.

Let’s make it clear : the THB is not “strong”. What is happening is that the USD is falling. Period. And a lot of smart money is going into asian and emerging countries. It’s mechanical : offer and demand… People want to invest in Asia (and to fly away from USD), so they have to buy local currencies, and so they are selling US. Therefore the exchange rates of those local currencies are going up.

But it’s too complicated for the Suckers. It’s politically incorrect. Because the Recovery is nothing but a fiction, they all want to boost their exports… at the expenses of others.

It’s the famous Beggar thy neighbour policy, through competitive devaluation (or at least competitive-not-valuation).

The famous blogger Mike Shedlock summarizes it perfectly :

Every country wants to grow by ramping up exports in a world of decreasing consumer demand. To achieve that end, every country wants its currency to be weaker against every other currency. Of course that is logically impossible.

Logically impossible indeed. But again, it’s too complicated for the Suckers to understand this.

The BOT is buying USD through forward positions.


(Source BOT)

From a low point of 3,68 billions USD end of february… the total forward positions increased to 15,63 billions last week.

It means we can’t even see the “‘interventions” of this week in the current chart (we will have to wait 7 days more).

To know more about forward positions, you should read my article of last december : The case of the forward positions : the coal mine canary.

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.

By the way, I was perfectly right. I wrote that eventually the BOT would follow the asian bias, to save thai exports.

And I spoke about the “joker” too.

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.

Yes… this is exactly what is happening now… and this is why gold is going up ! Paper money is toilet paper.

Anyway. Back to the BOT and asian central banks.

Interventions do not work. They can’t control the forex market. Because it’s just too huge. Japan was a famous “currency manipulator”… At least on intends side… But it didn’t work. So of course, if we speak about scale, the BOT’s small farts will change nothing.

Only one thing could work… They did it not so long time ago… You don’t remember ? 😉

Capital controls !

Yes ladies and gentlemen… In december 2006, three months after the Coup… And the situation was exactly the same : the THB was shooting up against the USD. At that time already, the obsession was to save exports sector.

One last word : when we speak about “saving thai exports”… it’s not really a matter of competition. I think it’s even simpler than that. It’s a matter of liquidities. For the whole economy.

Thai companies convert in THB (most of) the USD they earn outside Thailand (this exchange was even compulsory before... the BOT changed the regulations in 2008 , read here).

It’s very simple to understand :

-1-with an USD-THB exchange rate of 40, when you export 1000 USD of goods, you receive 40 000 THB. You feel rich. You can use this money to invest, to buy stupid and overvalued condo in Bangkok… The builders will earn money… Workers have work… The economy is running. People are happy. So politicians are happy too, and they can steal more money.

-2-with an USD-THB exchange rate of 33, when you export 1000 USD of goods, you receive 33 000 THB. You feel much poorer. You won’t buy a third condo for your children. Or to rent to stupid foreigners who won’t come to Bangkok anymore. Builders will earn less money. Unemployment rises. The economy is choking. People are not happy… And politicians are scared… And they can’t buy another Mercedes Benz with the money they can’t steal (and that’s really inhumane 😉 ).

Liquidities = lubricant = fuel = gasoline onto the fire.

The thai economy (along many other asian countries) is not really healthy (at this stage). A large chunck of the “growth” we have had in the recent years… was a mirage. Fueled by cheap currencies. Remove the lifeline of a strong USD… what do we have left ?

Abhisit’s smile ? 😉

Not quite enough to save us…

PS : I advise you to read the latest piece of Eric Janszen, about inflation on the long run… What he calls inflation via currency depreciation : the stealth currency devaluation. It’s radiant.

You’d think the deflationists would wonder how oil prices are above $70 in 2009 when demand is lower and inventories higher than in 2001 when the economy was nominally 15% smaller and oil prices averaged $22 after a very brief recession. […]

The U.S. monetary system is not on a gold standard in 2009 as it was in 1933. Instead the U.S. and the rest of the world monetary regime employ a de-facto global oil standard.

To prevent a liquidity trap via currency depreciation, instead of depreciating against gold the U.S. government depreciates the dollar against oil.

On one hand, we have Mike Shedlock, the Great Deflationist. And the other hand, what Mish calls the inflationistas. This debate deflation versus inflation is raging. Personally I’ve picked up my side : both. 😉

Mish is right : we are in deflation (assets prices / debts deflation). But Janszen is right too : on the long run, the bias toward a slow debasement of the value of money is just too appealing for the politicians (nothing new, the roman emperors did the same).

Chart, foreign reserves, and exchange rate


Gold 1, 2, 3 lift off ! 1042 USD/ounce last night ! Cause and effect of a crashing US Dollar…

Time to update the charts about the foreign currency reserves of the Bank Of Thailand.

Like virtually all central banks in the world, the BOT is happy (… not really) to buy USD.

Because, like virtually all countries in the world, Thailand is obsessed with the exchange rate in USD. They would do anything, even crashing their own local currency, to save the appearances and to save thai exports …



(Source BOT, table EC_XT_031)

Those trees won’t be able to grow to the sky…

We should have some real sport before the end of the year…

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. 😉

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


(source US Treasury)

Correlation ? You bet. 😉 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. 😉

Wait for the next episode of this Great Drama.

The 122 billions USD question : should Thailand use its foreign currency reserves ?

Since a few weeks, we hear calls for the BOT to use its foreign currency reserves, in order to boost the domestic economy. People don’t understand why the government should borrow billions of USD… when the BOT has a total of 122 billions in “reserves” (+ 6 in foward positions).

This discussion is not new actually. It started with the Samak government, last year.

First, if you don’t know what are the Bank Of Thailand reserves, read the official definition and my article.

(Here is an update of the chart, source BOT)


Let’s start with the official opinion of the BOT : it’s an absolute no-no. And this is not new. Here are some interesting quotes from Tarisa (the BOT governor), published last week.

Recently, Dr Narongchai Arkasanee, a well-known economist, and other academics, called on the central bank to use US$200 million (Bt6.82 billion) to $300 million of its international reserves of $120 billion to help stimulate the sagging economy as the government is cash-strapped.

Tarisa vigorously defended the central bank’s international reserves management, saying that in economic theory it is not an appropriate policy to use international reserves to prop up the economy.

“We have already talked it out with the prime minister and the finance minister that using international reserves to stimulate the economy is not a good option.

Apart from the US dollar, there are other currencies in the reserves. If we sell the dollar from the reserves, the value of the baht will jump, which would complicate the problems. And if the Bank of Thailand were to push out the baht by converting the US dollar in its own account, this would also amount to printing money,” Tarisa said.

No country in the world is spending money from its international reserves directly. If we were to use the reserves to buy up some oil reserves, then this matter can be put to rest because it would not affect the domestic economy.” (Nation)

Not an appropriate policy ? That’s a very interesting wording. But she’s right : very few countries are tapping into their reserves…

So why it wouldn’t be appropriate ? Let’s explore a few possible reasons.

Exchange rate
For a country like Thailand, with a growth driven mainly by exports, the issue of the exchange rate USD-THB (the other currencies are totally irrelevant as I showed in this article) is the core issue.

At 34 THB for 1 USD, exporters, businesses are already complaining. They all want a weak THB, to (artificially) boost their income (it’s the “beggar thy neighbor” policy, read my article here)

Selling USD, and converting them into THB, would lower the value of USD relative to THB (offer and demand). And then a higher THB would make like difficult for thai exporters.

Inflation could be another concern. All this cash, would be converted in THB, and then would flow the domestic economy. If liquidities are already at high levels, then it could produce an inflation of prices.

The honey pot syndrome
Tarisa is probably shy. But I see a third factor : thai politicians.

Who can trust thai politicians ? Nobody of course. And Tarisa knows that very well… She’s a member of the state apparatus. To give to the politicians the keys of the coffer would be in a way suicidal. This mountain of money could have very negative effect on their sanity… And their own bank accounts 😉

It would be like giving the keys of the fridge to a pack of hungry wolfes…

So maybe the BOT wants to keep an adamant position against this idea, to prevent any breach. To accept to give even a few hundred of millions of USD could create a dangerous situation.

As Tarisa says, tapping into foreign currency reserves is not a conventional policy. Central bankers are naturally reluctant to such an idea, because it doesn’t fit with their text books.

Especially in Thailand, where weight of “traditions” and lack of creativity are a heavy burden. However, we should note that the FED with Bernanke was not afraid to take “unconventional” decisions (very unconventional…).

Overall, those are the 4 reasons that could explain the BOT’s refusal.

But I think Tarisa is not telling us everything.

I would like to add a fifth reason, a fifth factor : the fear factor.

The fear factor, the conspiracy of the idiots or the MAD policy
There is a very fragile equilibrium right now in the world, about the USD. We all know that the US is doomed, but nobody who could have an influence over the USD want to take any action that could accelerate the move.

Yes, I’m speaking about central banks… who continue to buy (like there is no tomorrow) US Treasuries (my article here)… therefore USD.

If one central bank starts to getting out of the USD… even on a small scale, it could have huge consequences… and put the equilibrium in serious danger.

I’m not speaking about a conspiracy (albeit…) … but rather a “converging and common interest” between most of the central banks around the world… like a non written agreement if you prefer…

During the Cold War, there was the MAD concept : Mutually Assured Destruction… It’s exactly the same now with the USD…

So what to think ?
As for my own opinion… Should Thailand use its foreign currency reserves ?

I would definitely answer yes. At 122 billions USD and counting, the reserves are just too high (regarding conventional theory, and Tarisa should start to worry about the way she will justify an ever growing reserves…).

A fraction of this money could definitely be used to boost an investment program. A real one.

Thailand needs heavy infrastructures. And those wouldn’t be luxury (like to build a new stadium… interest = zero as far as economy is concerned)… but could really fuel future growth.

And the sector we are looking at is obvious : transportations.

But… of course once you have set up a principle, then politics catch you back.

It would be utterly unimaginable to give a large amount of money to the current thai government… I mean can you imagine a guy like Newin, whose gang controls the Transport Ministry, and such money ? It would be obscene.

That’s one of the main burden of the country : the dirty “politicians” (included bureaucrats and military).

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. 😉 (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.

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.