Bank of Thailand Governor Discusses Currency Manipulation: Q&A

Bank of Thailand Governor Denies Baht Manipulation

Thailand is one of 16 countries being investigated by the U.S. because of its surplus with the world’s largest economy. The U.S. under President Donald Trump is taking a harder line against countries the administration says may be manipulating its currency or taking other measures to give exporters an unfair trade advantage.

In an interview with Bloomberg Television’s Haslinda Amin on Thursday, Bank of Thailand Governor Veerathai Santiprabhob said authorities aren’t trying to weaken the currency and that they’re intervening in the foreign-exchange market following a surge in capital inflows. The baht has gained 3.4 percent against the dollar this year, the best performer in Southeast Asia.

Here’s an abridged transcript of the interview:

Question:

How concerned are you about a possible protectionist backlash?

Answer:

In emerging markets as open as Thailand, we’d be concerned with movements towards protectionism globally. I think that’s something that we have to watch for carefully. In the last executive order issued by President Trump, we would very much welcome the opportunity to exchange views and have dialogue with the U.S. administration.

We have not conducted any policies to gain an unfair competitive advantage in trade. So I think such a dialogue that has been incorporated in the process of this executive order will be very much welcome.

Question

Do you think Thailand will be included in the U.S. Treasury watchlist?

Answer

If you look at the current criteria of the watchlist of the U.S. Treasury, Thailand is not a major trading partner. If you look at the trade surplus we have had with the U.S., we are number 11. The size is not that large as compared to other trading partners of the U.S.

We have to understand that Thailand has not adopted any exchange-rate policies to gain an unfair competitive advantage in trade. Look at our export figures, during the past few years, we have had basically stagnant exports. Indeed, exports were declining, only very recently exports started to recover from a very low base.

Question

So you disagree with suggestions that Thailand is manipulating its currency to help export overseas?

Answer

I don’t think anyone has evidence that Thailand has manipulated the currency to gain an unfair competitive advantage. At times, we might have to intervene in the foreign-exchange market but that’s largely because of the intense capital inflows that we are on the receiving end of. When advanced economies have adopted unconventional monetary policies, creating too much excess liquidity globally, and with the sound macro-economic framework in Thailand and also other emerging markets, at times, we have been on the receiving end.

Too much capital inflows, intense capital inflows, have been coming in in a short period of time that could create adverse consequences. But if you look at what we have done during the past few years, we also look at exchange-rate volatility from both ways, from both directions.

Question

Given the greater scrutiny from the U.S., will that impact the Bank of Thailand’s ability to intervene? What options are now available to Thailand?

Answer

Foreign exchange intervention is definitely a measure that all central banks need to have on the menu list. But there are also other policy measures that one can look at, from market-based measures to the likes of capital-flow management measures. If and when we see the need to deploy those measures.

Question

Recently you cut the supply of debt to manage the increases in the Thai baht, which is one of the strongest currencies in Asia all of this year. What other measures are you planning?

Answer

That’s evidence to show that we have not manipulated our exchange rate to gain an unfair competitive advantage. We have allowed our currency to move in line with our neighboring currencies and indeed there have been times when the baht has become stronger than other regional currencies.

The reason that we decided to cut down the size of central bank bonds that have been issued regularly was because we have observed at times there have been incidences where investors wish to park excess liquidity in Thailand and the short-term central bank bonds are easy instruments for them to do so. So we decided to scale that back a bit. It’s just only one of the market-based measures that the central bank could do within the central bank’s authority.

Question

At what baht level versus the dollar would you be concerned?

Answer

We have a floating exchange-rate regime and we are not targeting any level of the currency. If you look at the value of the exchange rate against the U.S. dollar -- as in the case of other emerging markets, not Thailand alone -- they have been driven mainly by external factors, not domestic factors: expectations of the Fed rate hike or expectation of economic policies of the new U.S. administration. They have been mainly driven by the value of the dollar.

Question

We’ve seen exports recover but is it sustainable going forward?

We have just upgraded our GDP forecast this year from 3.2 percent to 3.4 percent. We have seen improvements in our export performance. That’s consistent with regional export developments, so I think that’s encouraging. If you look at Asia, and Thailand is part of the Asian value chain, if you see only Thai exports going up alone, we would not be as comfortable as when we see exports of other Asian emerging markets also increasing.

Question

Have you seen any impact on trade from protectionist policies?

Answer

Not yet, not yet. I think when you look at trade policies, international trade is a very complex matter. And the devil is in the details. So we have to look at what policy measures could come out from the U.S. administration and also what would be policy responses from other major trading partners. Obviously we don’t want to see the world moving in the direction of trade protectionism.

Question

How many Fed interest rate increases are you expecting and is Thailand ready for that?

Answer

What we have heard from the Fed again and again is that the normalization will continue but we don’t expect the policy rate of the Federal Reserve to go up suddenly. It’s going to be a gradual increase over the next few years. That’s helpful, the fact that the Fed has prepared the market so well during the last two increases.

If you look at Thailand, we believe that we have strong enough buffers to cushion against unexpected volatility in capital flows. We have not depended so much on external financing from the public sector, the government side and also corporations, so I think we’re not as fragile or as vulnerable as other emerging markets that have depended on external financing.

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