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Valetta
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Thailife,prior to the Asian financial crisis in 1997 the Baht was pegged to the $US at a rate of about 25 baht to $US.To maintain that rate Thailand had basically 2 financial tools at its disposal; interest rates and its foreign exchange reserves.If the Baht rate increased to above 25 interest rates could be increased to make the Baht more attractive to foreign investors and/or the BOT could dip into Thailand`s foreign exchange reserves to buy Baht.The result was an increased demand for Baht which raised its price relative to foreign currencies,so maintaining the rate of 25 Baht to $US.
But it was only sound economic policy to increase interest rates if the domestic Thai economy would not be too adversely affected.An increase in interest rates makes finance more expensive,slows growth,and reduces employment,all of which are not good for a government`s election prospects.
Any significant purchase by a central bank of its own currency tends to cause international financial markets to worry about the underlying strength of that currency,leading investors/speculators to sell the currency,and so forcing the central bank to buy more and more of its own currency.Unless the country has huge foreign exchange reserves the speculators inevitably win,leading to a devaluation of the currency to a rate which the global financial market regards as reasonable taking into account the underlying fundamentals of the country`s economy.
There is also a financial cost in maintaining foreign exchange reserves in that usually a better return can be obtained by spending the reserves to buy overseas assets which is what the Middle Eastern oil producing countries do with their petrodollars.
The point I am trying to make is that while any country wants to maintain a stable exchange rate,especially a developing country like Thailand because it knows that excessive currency swings discourage foreign investment,no amount of financial contols will maintain a stable exchange rate if a country`s economic fundamentals are not sound.
For at least 20 years prior to 1997 Thailand along with South Korea,Vietnam,and to a lesser extent Indonesia had enjoyed very high growth rates leading to higher and higher foreign investment.In this economic climate it made good sense to maintain a stable exchange rate be pegging the Baht to $US.The high inflows of foreign currency made it easy to maintain the peg without the need to resort to either interest rate increases,or using foreign exchange reserves to purchase Baht.
There also seemed to be no obvious downside to Thais agreeing to repay loans from foreigners in $US because the Baht was so stable.
In early 1997 their were defaults in the repayment of sovereign debt by some South American countries,and this caused a global loss of confidence in the security of loans to developing countries especially those in South East Asia.Foreign lenders panicked and,without too much attention to economic fundamentals,sought the safety of currencies such as the $US.Wherever they could foreign investors withdrew their money from South East Asia,resulting in steep falls in the values of currencies throughout the region,including the Baht.
Initially the BOT sought to preserve the peg by using foreign exchange reserves to buy Baht,but the weight of selling of the Baht was too great,and in July,1997 the BOT was forced to devalue the Baht by 20%,get rid of the peg,and let the Baht float so that its rate of exchange became determined by the global financial market.
Over the next few months the exchange rate halved to 50 Baht to $US,before stabilising at 40 which it more or less maintained until the global decline in the value of the $US commencing in 2006-7.
However,the months following July,1997 were disasterous for Thai borrowers who had to repay loans in $US because the devaluation of the Baht had, for them,made the $US much more expensive.Depending on the date of repayment their cost might have been increased by up to 100%.
It is not surprising,therefore,that since 1997 Thai borrowers would try wherever possible to repay foreign loans with Baht.However,it is usually the lender,not the borrower,who sets repayment terms.To the extent that foreign lenders agree to the repayment in Baht of loans to Thais,it is evidence of the lenders confidence in the stability of the Baht,and the underlying economic fundamentals of Thailand that support that stability.Unless there was that confidence foreign lenders would not agree to accept repayment in Baht.
Thus acceptance of Baht repayment is a result of the Baht`s strength, not a cause.
Along with foreign investor panic the currency manipulations of speculators had a lot to do with the wild fluctuations in the value of the Baht after the 1997 financial crisis.Moreover no country wishes to encourage speculation in its currency because speculation tends to give rise to a loss of confidence in the currency which is usually not related to the country`s economic fundamentals.It can easily lead to a situation where the market in the coun try`s currency is influenced more by fear than reason.
It is not surprising then that Thailand discourages the short selling of the Baht.
The imposition of capital controls by Thailand on 19 December,2006 was done to reduce short term(and therefore presumably more speculative) investment.Whatever effect the controls may have had on speculation they caused a probably unintended divergence in the onshore and offshore values of the Baht.Before the controls both rates were more or less the same reflecting the full global convertibility of the Baht.
After the controls were removed,I think in March,2008 both rates are again much the same,and the Baht`s exchange rate has been determined by the assesment of global financial markets of Thailand`s economic fundamentals namely rates of growth,inflation,balance of payments surplus,tourism,interest etc.
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Thai Girls : Meet Sexy Thai Girls
Posted on: 9:22 pm on Jan. 10, 2009
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Shredded Wheat
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Quote: from Valetta on 2:08 am on Jan. 8, 2009
....I very much doubt that the value of the Baht is likely to change very much in the next 6 months.
But what do you think?
I think it is going to fall like a stone.
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Bangkok Women : Meet Sensual Bangkok Women
Posted on: 2:32 pm on Jan. 11, 2009
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Shredded Wheat
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You didn't say you had to give reasons!
Edit in: In the jargon of LOS "Up to me". 
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Bangkok Girls : Meet Sexy Bangkok Girls
Posted on: 12:51 pm on Jan. 12, 2009
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don5252
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35 to 1 is about the only good news I can find during this world wide economic melt down, to good to last, (American perspective)
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Thai Women : Meet Matured Thai Women
Posted on: 4:47 pm on Jan. 12, 2009
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Valetta
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SW,I did not say reasons were required,but an opinion unsupported by reasons is not worth very much,especially when, as with your opinion,it is by no means obvious why it should be correct.
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Bangkok Women : Meet Beautiful Thai Girls
Posted on: 6:45 pm on Jan. 12, 2009
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Shredded Wheat
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Quote: from Valetta on 12:45 am on Jan. 13, 2009
...an opinion unsupported by reasons is not worth very much...
My opinion is worth the world to me. 
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Bangkok Girls : Meet Attractive Thai Girls
Posted on: 1:08 am on Jan. 13, 2009
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ItaliaThug
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The dollar is going to get stronger with the new president in 09/10. Pull back spending in the Middle East, govt is going to create lower paying white collar jobs for minorities, and there will be a greater optimism with the dems in power for the initial first two years. I could see the baht back to 44 to 1 by 2010.
Valetta, Please Edit your fine post with spacing between paragraphs.
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Thai Girls : Meet Active Thai Girls
Posted on: 1:33 am on Jan. 13, 2009
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Shredded Wheat
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You may be right Thug. There's a December 2008 World Bank report here full of useful data for the Thai economy and giving the Bank's outlook for Thailand.
Of particular interest to this thread is that it predicts the balance of payments surplus and international reserves will fall and there will be depreciation for the Thai Baht during 2009.
There's stuff in the report also that flags some of the areas where the Bank Of Thailand operates currency controls, which supports the contention made in Thailife's earlier posts.
More generally of interest to the BT Forum is the stuff that predicts increased unemployment and a movement of unemployed workers into the "informal sector". I think we know what the World Bank means by that.
http://siteresources.worldbank.org/INTTHAILAND/Resources/Economic-Monitor/2008dec-tem.pdf
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Thai Women : Meet Matured Thai Women
Posted on: 1:42 pm on Jan. 13, 2009
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afm171
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Quote: from Buttman 007 on 12:41 am on Jan. 9, 2009
Speaking of Thai currency, the following article was in the WSJ today. I had no idea that the villagers of Santi Suk printed their own currency. Has anyone ever seen/used these notes?
http://online.wsj.com/article/SB123128312320458913.html
That is FANTASTIC !!! Debt free money with no taxes and no interest - where is this village?
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By the way, I'm hearing some other rumblings that a devaluation of the Baht is in the works.
This little blurb from the Bangkok Post: Finance Minister Suchart Thadathamrongvej said he would like the baht currency to depreciate by five per cent to help stimulate the export sector and shoulder the economy in 2009.
And this clip from the net:
Sources are saying that the Thai Prime Minister has just got back from a meeting in Switzerland, that discussed the credit crunch, and that it was recommended that the Baht be devalued to head off a recession in Thailand
No links as such, but I have it from a reliable Thai that it WILL happen
Anyone have any additional insight into this?
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Bangkok Girls : Meet Attractive Thai Girls
Posted on: 5:22 pm on Feb. 10, 2009
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