exchange rate policy 1. just after ww2: high inflation, shortages of goods and foreign exchange...
TRANSCRIPT
![Page 1: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/1.jpg)
Exchange Rate Policy
1
![Page 2: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/2.jpg)
• Just after WW2: high inflation, shortages of goods and foreign exchange
• Began to use the multiple exchange rate system in 1947• Official rates and market rate
2
![Page 3: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/3.jpg)
• Began to use the multiple exchange rate system in 1947• Required exporters of rice, tin,
and teak to sell foreign exchange at an official rate (12.50 baht/$ which was lower than the market rate)
3
![Page 4: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/4.jpg)
• Began to use the multiple exchange rate system in 1947• Sold $ at an official rate for
essential imports• Less inflation, and more $
available + government revenue from export taxes
4
![Page 5: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/5.jpg)
• Thailand became a member of IMF in 1949• But no par value of the baht• The world adopted the Bretton
Woods system of $ and gold + adjustable peg ER system
5
![Page 6: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/6.jpg)
• Thailand started liberalization of trade in 1955• Abandoned the multiple ER
system• Established the Exchange
Equalization Fund (EEF) to
maintain the baht value at 20 ฿/$
6
![Page 7: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/7.jpg)
6 periods of ER system in Thailand:•Period 1 (1955-1963)• no par value of the baht • Bank of Thailand (BOT)
intervened (through EEF) to maintain the baht value
• Small changes in ER, lowest at
21 ฿/$7
![Page 8: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/8.jpg)
• Period 2 (1963-1978)• set par value of the baht at 20.88
฿/$ + 1%• Rather stable, pegged with $• Devalued with $ in 1972-73
• Adjusted parity to 20฿/$ in 1973 with a wider band + 2.25%
8
![Page 9: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/9.jpg)
• Period 3 (1978-1981): daily fixing• The global floating ER system• Thailand abandoned parity, and
pegged the baht with a basket of currencies
9
![Page 10: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/10.jpg)
• Period 3 (1978-1981): daily fixing• BOT and banks jointly fixed
exchange rates every morning by creating demand-supply balance
• More fluctuation in the baht
value (weakest at 21 ฿/$)
10
![Page 11: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/11.jpg)
• Period 4 (1981-1984): fixing by BOT• The baht began to depreciate
against $ with BOP deficits (second oil crisis)
• Speculation against the baht, with BOT defending and losing much of the reserves through the daily fixing
11
![Page 12: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/12.jpg)
• Period 4 (1981-1984): fixing by BOT• BOT stopped the daily fixing• BOT devalued the baht in 1981
from 21 to 23 ฿/$
12
![Page 13: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/13.jpg)
• Period 5 (1984-1997): basket peg• BOT pegged the baht with a
basket of currencies (7 including $ with the biggest weight), aiming at more flexibility and independence from $
13
![Page 14: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/14.jpg)
• Period 5 (1984-1997): basket peg• BOT devalued the baht in 1984
to 27 ฿/$• Exports and the economy
recovered• In practice, the baht was more
flexible, but still very much fixed with $
14
![Page 15: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/15.jpg)
• Period 5 (1984-1997): basket peg• Financial liberalization: no
interest rate ceiling, free capital movement, BIBF
• High economic growth, influx of capital inflows (high returns with no ER risk), real estate and stock speculative boom
15
![Page 16: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/16.jpg)
• Period 5 (1984-1997): basket peg• Export stagnation in 1996
triggered speculation against the baht, bursting the bubble
• BOT lost most reserves in defending the baht
16
![Page 17: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/17.jpg)
• Period 6 (1997-present): managed float• BOT floated the baht on 2 July
1997• The baht depreciated very
quickly, weakest at 56 ฿/$ in early 1998
17
![Page 18: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/18.jpg)
• Period 6 (1997-present): managed float• Managed float: no target of ER to
defend, but intervene only to reduce short-term fluctuations
• During 1999-2000 the baht
stabilized at 36-39 ฿/$
18
![Page 19: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/19.jpg)
• Period 6 (1997-present): managed float• During 2001-2002 the baht
depreciated to 43 - 44 ฿/$
• Later stabilized at 40 - 41 ฿/$ during 2003-2005
19
![Page 20: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/20.jpg)
• Period 6 (1997-present): managed float• During 2006-2007 the baht
appreciated to 33 - 38 ฿/$, while $ weakened worldwide
• BOT introduced at end of 2006 a capital control measure (unremunerated required reserve for S-T capital inflow or URR) to slow down baht appreciation 20
![Page 21: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/21.jpg)
• Period 6 (1997-present): managed float• BOT abolished the Exchange
Equalization Fund (EFF) in 2007• BOT just ended the capital
control measure (URR) in March 2008
• The baht has appreciated against the US dollar in recent years, due to the weak dollar worldwide
21
![Page 22: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/22.jpg)
• Period 6 (1997-present): managed float• The baht can be compared
against a number of currencies
22
![Page 23: Exchange Rate Policy 1. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947](https://reader035.vdocuments.site/reader035/viewer/2022070407/56649e3a5503460f94b2c208/html5/thumbnails/23.jpg)
23