November 28, 2006– This month, the following article appeared in the Bangkok Post.
“Ten leading exporters of food, farm goods and garments called for monetary measures and assistance from state agencies to ease the baht’s rapid appreciation, which they say has threatened their competitiveness. The exporters want the government to cap the baht’s appreciation at 1% to 2% above the currencies of trading competitors, rather than the current levels of 3% to 6%. The baht has appreciated by 11.4% from 41.17 baht per US dollar at the end of 2005, to 36.48 yesterday.
‘How can we compete with our rivals such as China, Indonesia, Vietnam when the values of their currencies increase only between 2% and 7%?’ asked Poj Aramwattananont, president of the Thai Frozen Foods Association.
The currency exchange rate of 37.50 baht per US dollar was the extreme tolerable rate for local exporters, he added. So when the baht jumped to 36.40 on Tuesday, he said, Thai exporters lost their ability to compete with foreign counterparts.
‘Local exporters have been improving their businesses by creating innovations, upgrading their skills, and reducing costs for years to make local competitive capacity top foreign rivals by 1% or 2%,’ Mr Poj said. ‘But controlling the baht’s value is something that is beyond our capability to manage.’
Tarisa Watanagase, the central bank governor, insisted yesterday that the Bank of Thailand had no policy to weaken the baht. The central bank will try to keep volatility at a minimum and introduce new rules to facilitate overseas investment by local firms.
Despite the complaints of local exporters in Thailand, the Bank of Thailand has remained firm in its stance of letting the market set the value of the Thai baht. This situation is really nothing new regarding the actions of Central Banks all over the world. I’m not really sure how anyone ever came to the conclusion that central banks exist to address the concerns of its citizens. In the U.S., a dollar that has been in decline since the day I was born certainly doesn’t help the purchasing power of its citizens. And who dictates the value of the dollar? The central bank.
Central banks, no matter if they exist in Asia, Europe or North America, exist to benefit a very concentrated financial elite. Period. When companies and individuals suffer, they can complain all they want, but their complaints have absolutely zero influence as to whether Central Banks decide to raise interest rates and prop up the local currency or decrease interest rates and weaken the local currency. Even the President or Prime Minister’s desires often have zero influence on central bank decisions. A few months ago, outgoing Japanese Prime Minister Koizumi and his cabinet voiced very strong opposition to the central bank raising interest rates from zero to 0.25%. In Japan, the central bank governor was handpicked by Koizumi and is subject to considerably more influence from the government than either the U.S. or European central banks. Still, in July of this past year, the central bank of Japan ignored Koizumi’s desires, and raised interest rates.
This matter in itself, is far to complex to examine within the narrow confines of a simple blog entry, but one thing should remain clear. Central banks operate just like any other privately owned businesses would, with every decision guided by its impact upon the welfare of its individual shareholders first, then the welfare of a nation second and at times, even perhaps as just an afterthought.
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J.S. Kim is the founder and Managing Director of maalamalama, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.
