5 replies to this topic

[Sexpat]

"Thailand's international reserves have swelled to a record, zooming past the US$100-billion (Bt3.4 trillion) mark as the Bank of Thailand sucks up dollars from the foreign-exchange market to rein in the galloping baht.

Gross foreign reserves of $82.6 billion plus net forward positions of $17.7 billion brought total reserves to $100.3 billion as of November 2, the Bank of Thailand (BOT) reported yesterday.

Although the central bank imposed capital controls in the second half of last December, it has still come under tremendous pressure to buy up the dollar to curb the baht's rise for fear of undermining the country's overall competitiveness.

Net reserves have grown by a staggering $26.4 billion this year, reflecting the huge hoard of dollars that the central bank has accumulated in its struggle to manage the baht.

BOT Governor Tarisa Watanagase said that like other central banks in the region, the BOT has been intervening in the forex market to stabilise its currency, and that has kept the baht moving in tandem with its regional peers. . .

Critics have warned the central bank about the potential for financial loss from the dollar's falling value as hard-currency reserves have steadily piled up.

Supavud Saicheua, managing director of Phatra Securities, warned in an article in The Nation yesterday about the risk of the central bank's massive forex dealings to tame the baht. Asian central banks are committing a collective policy error by buying up the US dollar to keep their currencies relatively weak, he said. But by doing so, they "are deliberately depressing the price of Asian assets".

http://www.nationmultimedia.com/2007/11/10...es_30055578.php

[Bob]

(1) Trying to intervene in the open markets to prop up a currency is usually a recipe for financial disaster. Central banks got away with doing this 20-30+ years ago but haven't been successful in recent times.

(2) Telling the world you're doing it (much like the growing worldwide complaints about the falling US dollar) is a recipe for lowering the value of whatever dollars you are holding. Buying more dollars when much of the world is attempting to diversify away from dollars is plain stupid.

[Hedda]

Central banks got away with doing this 20-30+ years ago but haven't been successful in recent times.

I'm not so sure about that, although I don't pretend to understand just what drives prices in the world markets in currencies or commodities. I am beginning to think it depends on which central bank you are talking about and how much money it has to throw around in the currency market.

The Bank of Thailand doesn't have the treasury or muscle to be an effective counter-weight to the free market world of currency traders and speculators out there, including other national banks who may have their own agenda when it comes to competitors. But Japan is a totally different story.

For example, have you noticed that while the US dollar has continued to plummet against all major currencies in the world for the past 2 years, the Japanese yen/dollar exchange rate remains virtually unchanged. For example, on 1/1/06, the exchange rate was 115 yen to one dollar. It was 113 yesterday, 22 months later. Compare that to the dollar's drop against the Euro, Baht, Canadian dollar, or just about any other currency in the world. Is that almost constant dollar/yen rate a coincidence or is someone, maybe the Bank of Japan, buying lots of dollars to keep Japanese exports priced competitively ?

If you want to see an interesting chart, takle a look at the link below, which shows the monthly Yen/dollar exchange rates from 1971 to 2007. It suggests that the "Japanese miracle economy" of 40 years ago was largely created and fueled by a distorted dollar/yen exchange rate of 358 in 1971, compared to the last ten years, where an exchange rate in the 110-130 range has seen Japan economy struggling with little growth.

http://research.stlouisfed.org/fred2/data/EXJPUS.txt

[Bob]

With respect to the Bank of China, you're absolutely right - they fix the yuan/dollar rate and control it fairly rigidly that way (i.e., they don't let the yuan/rmb float in the free market).
As to the fairly steady relationship of the yen and dollar, I suspect that has more to do with Japan's economy being in the doldrums for the last 15 years versus any intelligent plan of action by the B of J. In other words, compared to most asian economies, Japan's growth rate has been lousy for the last many years.


Edit: I'm commenting in regards to Hedda's comments immediately above (which seem now to have disappeared).

[Hedda]

Sorry, Bob, I tried to treat both the Yen and Yuan in the same post and it got totally too long and out of control, so I chopped it. You may be partially right about the yen being constant against the dollar because of the no-growth economy in Japan, but I suspect that the Bank of Japan is not adverse to throwing its weight around, albeit silently, to keep things in the export market from getting too far out of control.

I have to confess, however, that I become more convinced every day that one of the reasons for America's decline in world manufacturing is this stubborn insistence in some circles that the dollar has to be "strong." I remember when one British pound was worth $2.70 and America was probably the leading manufacturing country in the world back then. Balance the US budget and keep the dollar cheap and you just might see an export-driven US miracle too.

[Bob]

The major reason that the US economy is not in a recession at the moment is because of the huge growth in exports in the last year or two (up something like 40% in 2 years!).

The Bushie boys have desired the dollar to become weaker largely on the false idea that chinese goods will become so expensive that we (the US) will start manufacturing the goods again. That, to me, is fanciful thinking as it ignores this directly leads to inflation (which then leads to the Fed tightening credit and opening the door to a full-blown recession) and ignores the fact that our manufacturing facilities are gone (and, in my opinion, nobody is going to pay the huge capital investments to bring them back).

I'm sure that we're in general agreement that one can expect unexpected and idiotic things to occur economically when idiot politicians try tinker with economic policy. Even Thailand tries that once in a while.

For the US, it's too bad that Clinton (well.....Robert Rubin) left the scene in 2000. We wouldn't be in at least one incredibly stupid war and our economy would be humming along. I see that Rubin was just named CEO of Citibank after it's announcement of huge losses due to over-exposure in the subprime market (the former CEO actually gambled and bought a bunch of that junk as late as this September!). Some people say a company's fortunes are most directly tied to the expertise of its CEO and, if that's true, someday I'll probably wish I owned some Citibank stock now that Rubin's in charge.