Singapore Business Times - Wed, 10 Mar 1999
Bank of Thailand moves to curb baht speculation
Commercial banks asked to tighten baht/dollar swap trading rules
[BANGKOK]
The Bank of Thailand yesterday asked commercial banks to tighten baht/dollar swap trading rules to curb short-term offshore speculation in the baht.
Currency dealers said the changes, effective yesterday, were aimed at restraining speculators who have tried to make arbitrage gains on the current wide spreads between onshore and offshore forward swap premiums for the two currencies.
They said the move could be a preventive measure,
reflecting central bank concerns that currency
speculators may choose to sell down the baht in the
next few days amid uncertainty over the fate of a key
Thai bankruptcy bill that the government is trying to
push through Parliament.
The central bank requested the cooperation of
commercial banks through the private Forex Club,
asking them to stop committing to and refrain from
buying foreign currencies from offshore parties through spot contracts of less than two working days.
It said Bangkok-based banks should also stop doing
tomorrow/next day swap transactions with foreign
parties.
Dealers said the request was aimed at curbing baht
supply circulating in offshore markets.
"I think it may be connected to a (central bank)
concern that with the delay of these bankruptcy and
foreclosure laws, people may take advantage of the
situation and try to sell down the baht," said economist Chia Woon Khien at SEB Merchant Banking in Singapore.
"The idea is to increase the cost carried by speculators who short on dollars through tom-next (tomorrow-next
day) contracts. They now have to do one to
three-month deals that would at least involve higher
premiums," a dealer at a Thai bank said.
Dealers said the central bank retained its restriction
limiting the size of baht/dollar forward swap contracts to 50 million baht (S$2.3 million) per party. The
restriction has been in force since January 1998.
Mr Chia said the central bank's tightening of the rules
contradicted a government policy of trying to sell to
foreign buyers through a public auction about 227.4
billion baht of assets that insolvent finance firms had
transferred to the authorities.
Currency dealers said the central bank action did not
alarm the market, which saw the baht firm to 37.00 to the dollar before closing around 37.39. -- Reuters
Copyright Singapore Press Holdings Ltd, 1999. All rights reserved.
"Henry C.K. Liu" wrote:
> D. Bailey wrote:
>
> > Remember that there were capitalists and traders on the other side of all
> > those trades you are decrying. Players lost for all those who gained,
> > although it may not have been fifty-fifty, certainly. Moreover,
> > capitalists find no long-term benefit from destroying currencies as this
> > undoes the basic capacity to do business and extract value in the affected
> > countries. I disagree with your supposition that the devaluation of
> > currencies, especially the ones you mention, are wholly artificial.
> > Furthermore, the advantage that devaluation gives to a holder of goods for
> > sale is not inconsiderable. As for first-world capital using devaluation
> > to buy third and second world capital at below-market rates, I think that
> > is overstated. The first world capitalists clearly did a lot better during
> > the boom that during the bust.
>
> Yours is standard neo-liberal rationalization. Currency traders do not just make
> profit from their counterparties. They make their real money from the futures
> markets in anticipation of currency devaluation and volatility they engineer. By
> saying that devaluation of currencies is not artificial, you are saying the market
> forces are at work. This claim is simply a neo-liberal myth and is not supported by
> field data of the past 20 months. First World capitalists clearly did well during
> boom, but they will be in a even better position after the bust and the recovery,
> with more open markets and more cheaply acquired assets. Please give the reasons why
> you think First World capital using devaluation to buy Third and Second World assets
> cheaply is "overstated"- is it the same as the evils of slavery is overstated? It
> is the openly stated IMF strategy, and privatization and foreign acquisition data in
> Thailand and Korea are plain for all to see. DaimlerCrysler and Renault are competing
> for a stake in Nissan that is expected to close by the end of March. Merril Lynch is
> acquiring large positions in the Japanese financial service sector. The reason it
> has not occurred as much as expected is merely because Western capital is still
> waiting prices to hit bottom. You will be hard put to find any informed person in
> Asia agreeing with your neo-liberal views, or even from with in the World Bank.
>
> > I think the reason Marxism has so little *new* to say about finance
> > capitalism is that Marxists lack strategies for (and often understanding
> > of) credit creation.
>
> This may be simplistic. Marxism does not lack strategies or understanding for credit
> creation. Even in the 50s, the Soviet Union operated on national policies of long
> term credit. Many Marxists on this list will find your remark condescending.
>
> > The Marxist concept, to which you alude, of expanded
> > prosperity through better management and techniques is simplistic. The
> > reason is simple when stated as a question: Where is the money to come
> > from? The old answer is to simply create it by government fiat. This is
> > effectively credit at zero interest rate with no requirement to pay it
> > back, only the expectation of increased productivity overall. Such credit
> > has no risk premium. Naturally, therefore, a lender under such conditions
> > ties the "loan" with bureacratic strings in order to make sure the credit
> > advanced is not simply squandered. Such a system then naturally breaks
> > down to a competition among bureaucracies for resources. Unlike business
> > firms trying to secure credit, bureaucracies suffer no ill consequences for
> > securing more and more resources. After all they have no one to pay the
> > resources back to.
> >
> > Marxism's major theoretical and practical problem is one of money. Where
> > will Marxists get it and how will they get more of it into the hands of
> > working people to create a rapidly expanding and improving economy.
> > Distribution is certainly a problem but the real political and theoretical
> > problem for Marxists is to make the argument, and make it convincingly,
> > that we can engender growth and prosperity better and faster than
> > capitalists.
>
> This is again a neo-liberal line that sophisticated economic theory is a non-Marxist
> property.
> Similar arguments were used to defend imperialism, that Marxism does not offer a
> better alternative. This is the Rubin/Greenspan argument: neo-liberal market
> fundamentalism is not perfect, but all other alternative are worse - the Churchillean
> argument in defense of Western representative democracy.
> When it comes to an operative theory of money, capitalist economists are mired in
> confusion on the subject. That does not prevent them from expression the views on
> how to save the world.
> It is possible that Marxist economists have been silent because they view the
> Asian/global financial crises as a factional struggle between national and global
> capitalism and that they see no benefit in helping either side. The point of my post
> is to draw attention to the socio-political fall out of the financial crises which
> can be viewed as an extension of Lenin's observation of industrial capitalism's
> causal linkage to imperialism. The Third World rejected capitalism not because it
> was inefficient, but because it was part and partial of imperialism. It is obvious
> that socialism cannot flourish without a political context. Neither can capitalism
> for that matter, but the political context of capitalism is so well entrenched
> historically that the myth of its being human nature is widely accepted. The causal
> linkage between neo-liberal globalism and a new Western economic imperialism is
> increasingly clear to large number of people outside of the First World, without the
> need of esoteric theorizing. People are experiencing the evil impacts in their daily
> lives. A window of opportunity now exist to provide Marxist socio-economic-political
> alternatives before national socialism exploits the opportunity.
> Make no mistakes about it: anti-globalism, anti-finance capitalism and anti-Western
> sentiments are on the rise all over the world.
>
> Henry C.K. Liu