Baht What up with Dat?????

[can123]

The remarkable thing was that in the first weeks of that crash there was no increase in prices. The Beach View continued to charge 500 baht per night, beer remained at the same price. This is because ordinary Thais saw no difference and things carried on as usual. Gradually the economy improved as exports grew due to the devaluation and now history is about to repeat itself.

[parrot]

For our first 10 or so years in Thailand, I was pretty obsessive about tracking price changes, using an excel worksheet to keep me honest. Memory today tells me there was little change in prices for most anything for the first year after the crash of '97. VAT was briefly raised from 7% to 10%.....food items excepted, but that 3% paled in comparison to the improved exchange rate. I can remember going into stores and buying things at 40+/$1 that seemed like such a steal after buying the same items for 25/$1. I also remember the hoots and hollering from expats who came here post 1997 who thought 40+/$1 was the norm......when it never was.
Although I'm not in Thailand at the moment, if I were, I'd view 35/$1 as a gift......time to buy a big-ticket item like a new car/appliance/addition to house. If I bought such an item at 35/$1, and the exchange rate later changed to 40/$1, I'd still feel blessed.......as I continue to view the low 30s/$1 as the modern-day norm.

[Stantheman]

My first experience in Thailand was in 1971, was at U'Tapao for 60 days exchange rate then was 20 baht to $1 and I thought that was good back then.

[JimboPSM]

For those who are unfamiliar with or may have forgotten what the rates have been in earlier years. here are USD, GBP & AUD charts showing the average annual mid rate with the Baht for each year since 1981 - Note: the two right hand columns are for 2015 Ytd (Year to date) and 2015 latest (31 July 2015):

• USD/THB

  

  GBP/THB

  

  AUD/THB

  

[rick]

Can123 worries about the impact of the Chinese economy on the world economy; probably wisely so. However, the issue for us (in this thread at least) is what impacts on the baht exchange rate. Currently, we do not have much evidence that chinese economic fluctuations have a big impact on the exchange rate, at least up to now. Chinese investment in Thailand is a relatively new factor.
As far as dramatic changes in exchange rates go, Thailand's economy is still growing faster than most western nations, and at a rate which allows a slow but steady growth in real GDP. I cannot see it as a sick economy. They have a lot of exportable products and no negative trade balances (if the figures we see are correct). So I think what we see is a correction, not a collapse.

[JimboPSM]

As July recently ended and I’ve added the July numbers to my data I’ve taken the opportunity to revisit and update some old charts of the average monthly rates of the CNY/USD and the USD/CNY since January 2001; in addition, for added perspective, I've shown the charts in percentage terms (with January 2001 = 100%).

From the Chinese perspective showing the “appreciation” of the CNY against the USD:

• 

  

From the US perspective showing the “depreciation” of the USD against the CNY:

• 

  

As can be seen from the above, there has been a closely controlled appreciation of the CNY by the Chinese authorities since its “liberalisation” in mid 2005.

While in general there is virtually no correlation between major economic events and the value of the CNY, there is a somewhat stronger link between the Chinese GDP growth rate and the CNY value.

The stellar GDP and export growth at the start of the century and the strong balance of payments it generated led to widespread (and wholly justified) accusations of an undervalued CNY, but as the value of CNY has risen since 2005 and Chinese growth has fallen (see GDP growth below) there has been a rebalancing of relative economic strength and the CNY is probably now somewhere at or around fair value.

World Bank GDP growth figures for China since the “liberalisation” of the CNY in 2005 show 3 phases:

• 1. High growth (2005 - 2007)
  • 2005 – 11.4%
    2006 – 12.7%
    2007 – 14.2%
  2. Medium growth (2008 - 2011)
  • 2008 – 9.6%
    2009 – 9.2%
    2010 – 10.6%
    2011 – 9.5%
  3. Low growth (2012 - to date)
  
  • 2012 – 7.8% - the new norm
    2013 – 7.7% - the new norm
    2014 – 7.4% - the new norm
  http://data.worldbank.org/country/china

It has been particularly noticeable to me over the last year or so that the previously highly voluble chorus of complaints about the CNY being seriously undervalued has virtually disappeared – a growing number of economists are now suggesting that the CNY may actually now be overvalued, however with the lack of transparency of Chinese economic data those suggestions should be treated with caution as they are based more on educated guesswork than hard data.

However, looking at it very simplistically, if the CNY was still seriously undervalued western politicians and financial media would still be shouting the odds; however the deafening silence about an overvalued CNY along with the fall in GDP growth provides strong (albeit circumstantial) evidence that the CNY is now somewhere near fair value.



As an aside, although the Chinese economy has not been discussed much on UM there was a short thread some four years ago which can be found here:

• http://www.udonmap.com/udonthaniforum/post265770.html

[JimboPSM]

China has weakened its “reference rate” for the CNY by 1.9% today.

Its immediate impact at the major Thai banks on the USD/THB rate was a weakening of the Baht of just over 0.5%.

From Bloomberg:

China Weakens Yuan Reference Rate by Record 1.9% Amid Slowdown
by James Regan, Updated on August 11, 2015 — 3:15 AM BST

The yuan slid by the most since a peg ended a decade ago after China’s central bank cut the currency’s reference rate by a record 1.9 percent, allowing depreciation to combat a slump in exports.

The currency dropped 1.3 percent to 6.2920 per dollar as of 10:06 a.m. in Shanghai, and slid 1.5 percent in Hong Kong’s offshore trading. The onshore spot rate was 1 percent weaker than the reference rate of 6.2298, within the 2 percent limit allowed by the People’s Bank of China.

Tuesday’s reference rate move was a one-time adjustment, the PBOC said in a statement, adding that it will strengthen the market’s role in the fixing and promote the convergence of the onshore and offshore rates. It said also that it will keep the yuan stable at a reasonable level. The effective exchange rate is stronger than that of other currencies, which is a deviation from market expectations, the central bank said.

Operational requirements of the yuan entering the International Monetary Fund’s reserves may have dictated the move, according to Commerzbank AG.

“While the weak trade figures should have pushed the fixing to the weak side, this move is still quite out of consensus,” Zhou Hao, an economist at Commerzbank AG in Singapore wrote in a report. From the perspective of IMF requirements, “the yuan exchange rate will be more market-oriented going forward, and the volatility of both the onshore and offshore rates will pick up significantly.”

Exports Slump

The change in the fixing comes after the PBOC said earlier Tuesday that a strong yuan puts pressure on exports. China’s overseas shipments fell 8.3 percent from a year earlier in dollar terms in July, well below the estimate for a 1.5 percent decline in a Bloomberg survey.

The PBOC has kept the yuan broadly stable against the dollar since March and had been tightening its grip on the exchange rate as it encourages greater global usage in a push for official reserve status at the International Monetary Fund. The currency’s closing levels in Shanghai were restricted to 6.2096 or 6.2097 versus the dollar for more than a week and daily moves were a maximum 0.01 percent over the past month.

China’s surprise cut in the reference rate triggered declines of at least 0.7 percent in the Australian dollar, South Korea’s won and the Singapore dollar, while Hong Kong’s Hang Seng Index of shares rose 1.4 percent.

Original article: http://www.bloomberg.com/news/articles/ ... d-slowdown

[747man]

Baht is Now 54.12 to 1 GBP At Krungsri Now..

[JimboPSM]

Intra-day charts for the GBP/CNY and the USD/CNY showing the movement that took the markets by surprise on Tuesday morning – from the Market Data section of BBC Business News.

• 

  

  BBC currency charts default page: http://www.bbc.co.uk/news/business/mark ... efault.stm

While it took the markets by surprise, perhaps the 8.3% year on year fall in Chinese exports (reported on August 7th) which was so much greater than the estimated 1.5% fall from a Bloomberg survey should have provided more of a hint than it did.

• http://www.bloomberg.com/news/articles/ ... fer-relief

I made a comment on August 6th about the CNY being overvalued and the lack of transparency of hard data...

... a growing number of economists are now suggesting that the CNY may actually now be overvalued, however with the lack of transparency of Chinese economic data those suggestions should be treated with caution as they are based more on educated guesswork than hard data...

• ... it appears that the Chinese were more than convinced by their own data that the CNY had become fundamentally overvalued and that the need for immediate corrective action was far greater than their long standing desire for stability in the CNY/USD exchange rate.

[Jing Jing]

the WSJ reports:

"If China’s devaluation deepens, pressure to weaken currencies could become particularly intense in other Asian nations that export large amounts to China or compete with Beijing in other markets. Asian currencies tumbled on Tuesday, notably the South Korean won, Australian dollar and Thai baht, as investors bet China’s move could lead to further monetary easing in those nations. Many Asian nations have cut rates this year and could be forced to take further action in coming months."
.

[BobHelm]

The 'Official' Thai view on the matter - for what it is worth...

Thai economy unaffected by weakening yuan

BANGKOK, 12 August 2015 (NNT) – The Ministry of Finance and the Bank of Thailand (BOT) have confirmed that China’ decision to weaken its currency, Yuan, won’t affect the country.

Speaking about the impact of the weakening Yuan on the country’s tourism, Finance Minister Sommai Pasee said prices of Thai products and services would be higher by no more than two percent, which would be marginal for Chinese tourists.

As for the export sector, Mr. Sommai disclosed that the Ministry of Commerce was working on ways to cope with China’s economic measures. He has ruled out the possibility of lowering interest rates to devalue the Thai baht as the general public would be affected.

Beijing has recently announced its decision to its currency to 6.22 yuan per dollar, the lowest during the past three years, to boost its export competitiveness. The devaluation is intended to make Chinese products cheaper than those produced by rival exporters.

Meanwhile, the Bank of Thailand reported that the weakening yuan had caused the value of Thai baht to fall by 0.35 percent. This will foster China’s economy in the long run and will benefit the region’ economy accordingly.

[jackspratt]

the WSJ reports:

".........Asian currencies tumbled on Tuesday, notably the South Korean won, Australian dollar and Thai baht, ............"
.

The good news for us Ozians is that the baht is going in the same direction as the A$, which means it has stayed pretty much around TBH25 = A$1 for some time now, despite the A$ weakening significantly against the US$ and RMB. [-o<

[JimboPSM]

It’s Thursday, so some breaking news



From BBC News:

China yuan guiding rate set lower for third day

China has set the guiding rate for its yuan currency lower for third consecutive day.

Thursday's rate was set 1% down against the dollar, a smaller margin than the shock cuts earlier in the week.

The bank had on Tuesday announced it would start setting the daily rate based partly on the previous day's trading, bringing the yuan closer to a free-floating currency.

The move triggered concerns over a currency war to boost China's exports.

The Thursday midpoint rate set by the People's Bank of China was 6.4010 yuan for $1, a 1.1% rise from the previous day's 6.3306.

The midpoint is a guiding rate, from which trade can rise or fall 2% during the day.

Original article (which is being updated) http://www.bbc.co.uk/news/world-asia-china-33900274

Re the official view from BH - If that is the view of the same people who produce the highly creative and imaginative GDP and Export forecasts, it will not be long before they need to revise it down.......... and then not much longer before they need to revise it down again

[wazza]

Wondering how this all affects China's ability to attract other countries with their version of the IMF now ??

[JimboPSM]

In my opinion what we have seen this week is the result of the unintended and unforeseen consequences of a combination of factors, some of the major ones being:

• • China having pegged the CNY to the USD since mid 2005 (with a managed appreciation).
  • The CNY/USD rate reaching (and possibly exceeding) “fair value”.
  • The global financial meltdown and its continuing legacy impact.
  • Quantitative easing from Fed, BoE and ECB.
  • The declining Chinese GDP growth rate (from its unsustainable levels)
  • The USD having been subject to Fed interest rate speculation forces since July 2014.
  • The USD benefitting from the “flight to safety” factor re Greece.
  • The USD benefitting from a far stronger economic recovery in the US than other developed economies.

The impact of China pegging the CNY to the USD and its managed appreciation didn’t matter all that much when China was enjoying high growth rates and had an undervalued currency.

However, in my opinion, the CNY has been pretty close to fair value since 2012 by which time the carefully managed rise of the CNY (in nominal terms) against the USD since mid 2005 when (what was) the current pegged regime was introduced exceeded 30% and GDP growth levels had fallen in percentage terms from the low to mid teens up to 2007 to less than 8% from 2012 to date.

The really big game changer has been the CNY reaching “fair value” as that, at a stroke, eliminated the major advantage Chinese manufacturing (as a whole) enjoyed for the last couple of decades – price competitiveness.

Looking at the other side of the equation, since June 2014 the US Dollar indexes (which show the value of the US Dollar relative to various baskets of currencies) show a sharp upwards spike having risen by 21.3% (Major), 16.0% (Broad) and 12.1% (Other).

The Index increases having been mainly due to “speculative” movements relating to a Fed interest rate increase, the impact of a “flight to safety” movement engendered by the Greece fiasco and the continuing very marked improvement in the US economy when compared with other developed economies.

This means that (excluding the minor movements that occurred prior to this week) the CNY had also risen by 21.3%, 16.0% or 12.1% in little more than 12 months (depending on how you view its relationship with each index) while most of its major competing countries have not.

Putting it into context, all the hysteria and hype about the CNY devaluation is about something that was less than half of the upward spike in the value of the USD (using the most charitable index) since July 2014.

Apologies if my explanation appears a bit convoluted, but I am trying to keep it brief(ish) – however trying to provide a comprehensive explanation of all the complexities without creating a concurrent cure for chronic insomnia is virtually impossible.

These are the monthly charts for the US Dollar Indexes referred to above (Major, Broad and Other), irrespective of which one you may think is most representative, they all show basically the same source of the problem – how the value of the US Dollar has soared since June 2014 (which, in practical terms, left devaluation as the only corrective mechanism available for the Chinese financial authorities).

• 

[parrot]

Krugman's take on China......along with several hundred comments to his columnA
http://www.nytimes.com/2015/08/14/opini ... shtml.html

An aside....an interesting article on exporting Mercedes (made in the USA) to China. Who'da'thought?
http://www.nytimes.com/2015/08/12/busin ... diana.html

[Jing Jing]

Peter Schiff in a recent article states the following:
"This is the key to understanding the announcement: The Chinese are preparing for a time in which the financial world does not spin in orbit around the dollar. Such a reality must make us think about the future."

He goes on to state
"Perhaps the Chinese feel as I do that the current dollar rise has all the earmarks of a classic bubble."

Thailand may also find it wise to decouple from the USD.

[parrot]

Peter Schiff in a recent article states the following:
"This is the key to understanding the announcement: The Chinese are preparing for a time in which the financial world does not spin in orbit around the dollar. Such a reality must make us think about the future."

He goes on to state
"Perhaps the Chinese feel as I do that the current dollar rise has all the earmarks of a classic bubble."

Thailand may also find it wise to decouple from the USD.

A wiki extract: "Since 2009, Schiff has been predicting future skyrocketing gold prices, sharp increases to consumer prices, hyperinflation, poor returns for the US stock market, a bond bubble that is set to collapse, and the collapse of the U.S. dollar. In 2014, Schiff began advising people to relocate to Puerto Rico to take advantage of the territory's tax laws.

In 2010, Schiff ran in the Republican primary for the United States Senate seat in Connecticut, but lost to Linda McMahon, coming in third place.

Schiff expresses bearish views on the U.S. economy and the U.S. dollar, and bullish views on commodities, gold, foreign stocks and foreign currencies. Schiff voices strong support for the Austrian School of economic thought.[9" .......sounds like he's from the same mold as Marc Faber.

[parrot]

Is it fair to say that with the devaluations of the Chinese renminbi (recently) and the Vietnamese dong (over the past year), that the 6.5% or so change in value of the baht/dollar over the past year......puts all 3 currencies at par with each other......more or less?
Just curious

[Jing Jing]

This is what is posed in the Nation today

"The Nation August 21, 2015 1:00 am
Private enterprises have urged the government and the Bank of Thailand to review the country's monetary policy given the global currency wars and the resulting higher level of competitiveness in international trading."