THB - Now Have a 2-Tier Market

[K2]

I've been wondering about the 2 Tier market that has developed with the USD/THB exchange rates - namely between the onshore rates as quoted by the Bank of Thailand and the interbank (offshore) rate quoted by Bloomberg et al.

I found this research note by BKK Bank:

http://www.bangkokbank.com/download/...N200701_04.pdf

Due to the capital control (mostly lifted today 15/03) foreign investors had to hedge (fully) their THB brought into Thailand - thus creating this 2 tier market that has had me puzzled for a while.

Now capital controls largely relaxed will see with onshore(BoT) and offshore rates converge - cuurently BoT onshore rate is 34.95 and interbank offshore rate is 33.09 - thats a 5.3% difference (stronger in THB terms).

For BM's CHANGE YOUR MONEY HERE IN THAILAND - NOT in your home country - at the moment even airport money changers will be better than offshore money changers.

[dizbuster]

Brings back memories of BEC and BEF 55555

[LivinLOS]

As I said in another thread.. The BoT are playing games with the perceived values.. as soon as the 30% does get stopped (has this been said officially) then expect all those tricks to fail and 33 to be the real rate once more.

[TanMan]

Still want to know what rate a US based bank ATM transaction gets in Thailand... Maybe I will have to check it myself tomorrow, and will report back...

[Pussy Whipped]

I have actually managed to make some money on the exchange rates, its been a good couple of weeks, the Thai gov must have been losing millions and millions, Ok I know everyone has had to smurf it in under the currency control limit, but still they must be losing loads and loads and loads

[enthaiced]

Totally agree with K2... found it out the hard way after getting baht in three different ways (exchange in home country, exchange in LOS, withdrawal from ATM in LOS). Exchange in LOS is a sure winner.

[Sirgezza]

Originally Posted by enthaiced

Totally agree with K2... found it out the hard way after getting baht in three different ways (exchange in home country, exchange in LOS, withdrawal from ATM in LOS). Exchange in LOS is a sure winner.

How much difference was there between exchange in LOS and withdrawal from ATM in LOS?

[enthaiced]

I'll have to get my receipts to be exact, but roughly, I got about 18700 baht from Travelex spending £300 (exchange in home country that's the worse rip off of all), I withdrew 20000 baht at Phuket and paid £310 (ATM withdrawal) and exchanged my remaining £100 in LOS for 6700 baht. That's after the fees, commissions and stuff. So approximately it was 62.3 for option 1, 64.5 for option 2 and 67 for option 3. Yes it wasn't the same day, but it was in the same week.

[Sirgezza]

Originally Posted by enthaiced

I'll have to get my receipts to be exact, but roughly, I got about 18700 baht from Travelex spending £300 (exchange in home country that's the worse rip off of all), I withdrew 20000 baht at Phuket and paid £310 (ATM withdrawal) and exchanged my remaining £100 in LOS for 6700 baht. That's after the fees, commissions and stuff. So approximately it was 62.3 for option 1, 64.5 for option 2 and 67 for option 3. Yes it wasn't the same day, but it was in the same week.

I use Nationwide, and the ATM withdrawals were very similar to the exchange rate.

[K2]

The latest comming from the Bank of Thailand makes 'interesting' reading - full story here ...

http://www.bangkokpost.net/Business/16Mar2007_biz36.php

In the 'old days' when risk mattered and there was some rational in markets such statements as this would have meant significant impact on the market...

''We are learning as we go, as there is little experience from other countries to help us,'' he added. ''Indeed, we are blazing a new trail, and many other countries are watching closely to see what the results will be of our experience from what has happened over the past four months. In the end, they might have to take similar actions to control their own currencies.''

Dr Chalongphob (Finance Minister).

"Since Jan 1, the bond market has recorded 30 billion baht in foreign net sales, compared with a 30-billion-baht net buy position for all of 2006. The three-year yield was quoted at 3.99% yesterday, with the 10-year at 4.19% and 4.49% for 19-year bonds. Short-term yields of one to seven days rose to nearly 5%. "

(US 3yr 4.50%, 10yr 4.54% and 20yr 4.78% source U.S. Treasury - Daily Treasury Yield Curve)

The domestic THB yeild curve is very hard to believe - with all thats going on should be at least on par with US curve and in all respects considering the risk should be 200-400bp over the US.

Lucky for BoT now taht the world seems oblivious to risk.

[ATMwalking]

Originally Posted by K2

''We are learning as we go, as there is little experience from other countries to help us,'' he added. ''Indeed, we are blazing a new trail, and many other countries are watching closely to see what the results will be of our experience from what has happened over the past four months. In the end, they might have to take similar actions to control their own currencies.''

Dr Chalongphob (Finance Minister).

The Post keeps moving articles and killing links

I thought he had a world bank background? I'm not a currency guy, but on the surface this seems wrong and actually pretty stupid. Yes?

[K2]

Originally Posted by ATMwalking

I thought he had a world bank background? I'm not a currency guy, but on the surface this seems wrong and actually pretty stupid. Yes?

Yes - even more surprising is that Thailand not getting punished by this 'strange' behaviour.

Bloomberg today have started to display THB (onshore) 34.78 and THB (offshore) 31.68 rates separately.

Thats now a ~10% stronger THB offshore !!!! - still offshore interest rates are at least 4% higher than onshore rates - goes some way in explaining this aberation.

[LivinLOS]

So any 'friendly' bank manager.. With the ability to flip the 'cleared' and 'uncleared' funds switch on withholding has access to a 10% arb !!!

As theres all kinds of loopholes to the 30% withholding tax (property purchase, Thai companies that need overseas finance, etc) I fail to believe that people are not making millions on this with bent paperwork..

Hell even driving the border simply cash smuggling would be very profitable !!! Say 2 - 4 mil carried daily over sadao.. Would a professional looking person (Thai) in a merc even get in trouble for having more cash that they should declare ??

Do any of the Thai / Asian banks use what I used to call a bar cheque in Germany.. Eg a cheque good for instant cash thats not named, bearer cheque ?? I doubt it cross border unless you had a international at both ends.. HSBC in Sadao !!

Seriously 4 mil baht could be pulling 400k.. Easy to do in a day.. I dont even think if there was a bar cheque system that its illegal ?? Never heard a restriction on carrying maximum cheques into and out of the country !!!

[ATMwalking]

So you wire money in, bank exchanges it into THB.

Cut a draft check in THB.

Hop on a plane to Singapore and exchange it back out to USD?

And you clear roughly 10% profit?

Why are we sitting here type right now? Seems like free money. What am I missing?

[K2]

I reckon its going on too LiL ... too tempting to pass up and not even technically very difficult. The spead has opened up by 4.6% in a week ... just wonder where and how is is going to end.

This is an outline of Myanmars FX system: -

http://www.thailawforum.com/articles/forexkobatake.html

Looks like Thailand is heading in the same direction!

[K2]

Originally Posted by ATMwalking

Seems like free money. What am I missing?

It wont last long ... the BoT is down US$6 bln on reval ... at this rate it will have wiped out it reserves by August.

[LivinLOS]

Originally Posted by ATMwalking

So you wire money in, bank exchanges it into THB.

Cut a draft check in THB.

Hop on a plane to Singapore and exchange it back out to USD?

And you clear roughly 10% profit?

Why are we sitting here type right now? Seems like free money. What am I missing?

Believe it or not things like this happen..

The UK charges (or did) 17% sales tax (VAT) on commercial sale of gold coins (krugerands, maples, etc)..

Apart from the trivial scam setting up of a company turning over (eg just getting on a a train to Luxemburg where its tax free) 250k a day for 3 months (the VAT declaration time period) and running away with all that VAT (dont ask ) theres another arb..

As a dealer has to charge 17% VAT.. And as a private seller doesnt.. Theres a few of the Kosher brigade who will put together sellers and buyers for 'private sales' and skim a quiet few %.. In general the matchmaker would get 2 - 3% and the others would split the VAT deal both skimming 7% or so on top of the spot price or under the spot + VAT price.

If Yakov has enough buyers to keep a constant stream of buying going and if your happy to sleep on the Eurostar and physically carry a few 100k GBP around in krugerands theres a nice healthy trade you can work. Technically you can import your own coins without any issue and if you happen to change your mind about keeping them on the Eurostar between Dover and London well that was up to you !!

You are exposed to gold price fluctuations but as you could confirm the buyer was waiting in the am and be back in London by the afternoon the price risks are minimal.. I always worried that Mosha would set you up to be rolled tho.. Plus carrying 15 or so KG's is exercise in itself..

Not huge money but also not a bad way to make 10 grand (legal-ish) tax free in a day..

[ATMwalking]

Originally Posted by K2

It wont last long ... the BoT is down US$6 bln on reval ... at this rate it will have wiped out it reserves by August.

Assuming they go the distance, isn't no reserves what caused the last crash/crises here?

[LivinLOS]

Any time you fight the market (and the market gets a sniff your losing) you end up crashing out.. You can call that running out of reserves or you can call it a dumb move.. Net results the same..

The amount of money they are losing and what that money could do as direct inward investment into education and infrastructure to the poor, instead of protecting the profits of the elites in exporting short term is staggering.. But thats long term view v immediate..

Looks to be an 'interesting' year to say the least..

[dizbuster]

So prospects for the THB/Tiger, THB/Singha, THB/Heineken, and THB/BG forward markets look good then

[LivinLOS]

The relative appreciation in the BG asset class has been noted.. I would advise holding BG's right now..

[Drive]

Originally Posted by LivinLOS

Any time you fight the market (and the market gets a sniff your losing) you end up crashing out.. You can call that running out of reserves or you can call it a dumb move.. Net results the same..

So would you draw any parallels between the current situation in Thailand and the attempts of the Conservative government in the UK in 1992 to shadow the Deutsche Mark and remain within the ERM?....I seem to remember George Soros making US$1 billion out of selling Sterling short....resulting in Black Wednesday, the U.K's exit from the ERM....and the subsequent overdue devaluation of the Pound Sterling.....

[LivinLOS]

Yeah I remember Lamont crashing out of the ERM also.. Soros making a billion.. Funnily enough Soros got a lot of blame from Thai side for the asian currency crisis.. But it was simply a case of him seeing a Gov fighting a tide it couldnt hold back..

I dont think the parallels are very neat.. Only the basic idea that you cant play king Canute and hold back the tide..

[Drive]

So the result is inevitable.....unless someone more powerful than the B.O.T. decides that it's in their interests to prop up the Baht also.If that doesn't happen and the dyke bursts....any idea where it's headed?