The value of the baht fluctuates all the time. As we saw in May 2024, the baht weakened to the level of 37 baht/US dollar. But after a while, the baht continued to strengthen until it was close to reaching 34 baht/US dollar in August. The question is: how quickly does the value of the baht change? What effects are caused by this? How will it affect our finances or the economic system? Today, we invite you to find the answer.
What does it mean by “strengthening of the baht”?
The strengthening of the baht means that the baht has a higher value compared to other currencies such as the US dollar or the euro, causing us to use less baht to exchange or buy goods from abroad. For example, if 1 US dollar is normally equal to 36 baht, it means We must use 36 baht to exchange for 1 US dollar. But if the baht strengthens The exchange rate becomes 1 US dollar equal to 34 baht, showing that we used only 34 baht to exchange for 1 US dollar.
The baht is strong! What is the cause?
There are many factors that cause the baht to strengthen, such as:
Interest rates in Thailand
If the policy interest rate in Thailand is higher than other countries, it will attract more foreign investment into Thailand. This causes a higher demand for the baht. Simply imagine, if we have a lump sum of money, we would like to move it to a bank account that has a higher interest rate than we currently have.
The amount of foreign money coming into the country has increased.
When investors believe that Thailand’s economy will grow well. There will be more foreign capital flows to invest in Thailand. This will increase the demand for the baht. and push the baht to strengthen
However, the confidence of foreign investors will be determined by the economic conditions, such as the inflation rate and the unemployment rate. The amount of international reserves, including political stability as well. If the political situation is uncertain, or a conflict within the country arises, investors may not be interested in investing in Thailand and pull the money invested out to other countries This results in the baht’s weakening.
More foreigners are traveling to Thailand.
Whether it’s a businessman or a tourist, when traveling to Thailand, they must exchange to the baht in order to spend and purchase goods and services within the country. This causes the demand for the baht to increase.
Export more products than import.
The fact that Thailand exports more goods and services than it imports This is called a surplus. This causes more foreign currency to flow into Thailand and get exchanged for the baht. Therefore, there is more demand for baht in the world market.
Monetary policy of the Bank of Thailand
Interest rate adjustments and exchange rate controls that increase the minimum reserve ratio, or other measures of the Bank of Thailand would also affect the demand and supply of the baht.
Policy of the United States Federal Reserve (Fed)
Economic policy actions of the Federal Reserve will inevitably affect the world economy, especially when the US Federal Reserve has a tendency to reduce its interest rate. Investment will flow out of the United States and enter other assets and other countries, including in Thailand as well.
Foreign currencies depreciate.
Changes in the value of major currencies such as the US dollar, the Euro or the Yen will affect the value of other countries around the world, for example, if these major currencies weaken, it will allow us to use baht to exchange for buying foreign currency in larger quantities.
Selling gold for profit
During last year, Thai people bought the highest amount of gold in the ASEAN region, partially due to price speculation. Therefore, when gold prices rose sharply in mid-2024, investors sold gold to make large profits. As a result, more dollars are converted into baht back into the country. This is another small factor that helps support the baht’s appreciation.
How does a strengthened currency affect the economic system?
The strengthening baht will affect the economic system in many dimensions, such as
Positive effects on the economic system
- Imported products become cheaper: When the currency is strong Products imported from abroad will be cheaper, such as electronic equipment, machinery, brand name products, oil, resulting in lower production costs. Consumers have more choices in purchasing a variety of products. This may include gambling fees from popular websites like we88th too, which will allow us to enjoy gambling while saving more money!
- Reduced costs in some manufacturing sectors: Manufacturing sectors that rely on imported raw materials will be able to purchase raw materials from abroad at lower prices. As a result, production costs are reduced.
- Reduced foreign debt burden: A company or government with foreign debt will use a smaller amount of baht to repay debt
- The stock market may rise: when the baht is strong, it means that the flow of foreign money into Thailand has increased. One of the ways is foreign investment that will enter the Thai stock market.
- Reduced inflation: Normally, a stronger baht reduces the cost of importing raw materials and goods from abroad, which helps reduce production costs Therefore, the selling price can be set lower. Including being able to import products to sell at a cheaper price. It will result in the overall price of products in the country decreasing. and help reduce pressure on inflation.
Negative effects on the economic system
- Domestic tourism may not be as active: Thai people may see that expenses when traveling abroad are cheaper. Therefore, more people travel abroad. While foreign tourists view expenses for traveling to Thailand are becoming more expensive and choose to go to another country or postpone their trip for now.
- Exporting is more difficult: The strong baht makes Thai export products more expensive in the world market. This makes competing with other countries more difficult, affecting income from exports.
- Agricultural products may be sold less: Agricultural products exported abroad will have higher prices. It may cause foreigners to order less and products to become harder to sell If products cannot be released in time. There may be an oversupply of agricultural products in the market.
- Real estate sales to foreigners may decrease: Even real estate in Thailand such as condominiums, houses, vacation homes will be in demand by tourists or foreign investors. But when the baht is strong The price you have to pay will inevitably increase as well. This may result in foreign customers delaying purchases.
