1. Exchange Rate Policy 1

2. Just after WW2: high inflation, shortages of goods and foreign exchange Began to use the multiple exchange rate system in 1947 Official rates and market rate 2

3. Began to use the multiple exchange rate system in 1947 Required exporters of rice, tin, and teak to sell foreign exchange at an official rate (12.50 baht/$ which was lower than the market rate) 3

4. Began to use the multiple exchange rate system in 1947 Sold $ at an official rate for essential imports Less inflation, and more $ available + government revenue from export taxes 4

5. Thailand became a member of IMF in 1949 But no par value of the baht The world adopted the Bretton Woods system of $ and gold + adjustable peg ER system 5

6. Thailand started liberalization of trade in 1955 Abandoned the multiple ER system Established the Exchange Equalization Fund (EEF) to maintain the baht value at 20 ฿ /$ 6

7. 6 periods of ER system in Thailand: Period 1 (1955-1963) no par value of the baht Bank of Thailand (BOT) intervened (through EEF) to maintain the baht value Small changes in ER, lowest at 21 ฿ /$ 7

8. Period 2 (1963-1978) set par value of the baht at 20.88 ฿ /$ + 1% Rather stable, pegged with $ Devalued with $ in 1972-73 Adjusted parity to 20 ฿ /$ in 1973 with a wider band + 2.25% 8

9. Period 3 (1978-1981): daily fixing The global floating ER system Thailand abandoned parity, and pegged the baht with a basket of currencies 9

10. Period 3 (1978-1981): daily fixing BOT and banks jointly fixed exchange rates every morning by creating demand-supply balance More fluctuation in the baht value (weakest at 21 ฿ /$) 10

11. Period 4 (1981-1984): fixing by BOT The baht began to depreciate against $ with BOP deficits (second oil crisis) Speculation against the baht, with BOT defending and losing much of the reserves through the daily fixing 11

12. Period 4 (1981-1984): fixing by BOT BOT stopped the daily fixing BOT devalued the baht in 1981 from 21 to 23 ฿ /$ 12

13. Period 5 (1984-1997): basket peg BOT pegged the baht with a basket of currencies (7 including $ with the biggest weight), aiming at more flexibility and independence from $ 13

14. Period 5 (1984-1997): basket peg BOT devalued the baht in 1984 to 27 ฿ /$ Exports and the economy recovered In practice, the baht was more flexible, but still very much fixed with $ 14

15. Period 5 (1984-1997): basket peg Financial liberalization: no interest rate ceiling, free capital movement, BIBF High economic growth, influx of capital inflows (high returns with no ER risk), real estate and stock speculative boom 15

16. Period 5 (1984-1997): basket peg Export stagnation in 1996 triggered speculation against the baht, bursting the bubble BOT lost most reserves in defending the baht 16

17. Period 6 (1997-present): managed float BOT floated the baht on 2 July 1997 The baht depreciated very quickly, weakest at 56 ฿ /$ in early 1998 17

18. Period 6 (1997-present): managed float Managed float: no target of ER to defend, but intervene only to reduce short-term fluctuations During 1999-2000 the baht stabilized at 36-39 ฿ /$ 18

19. Period 6 (1997-present): managed float During 2001-2002 the baht depreciated to 43 - 44 ฿ /$ Later stabilized at 40 - 41 ฿ /$ during 2003-2005 19

20. Period 6 (1997-present): managed float During 2006-2007 the baht appreciated to 33 - 38 ฿ /$, while $ weakened worldwide BOT introduced at end of 2006 a capital control measure (unremunerated required reserve for S-T capital inflow or URR) to slow down baht appreciation 20

21. Period 6 (1997-present): managed float BOT abolished the Exchange Equalization Fund (EFF) in 2007 BOT just ended the capital control measure (URR) in March 2008 The baht has appreciated against the US dollar in recent years, due to the weak dollar worldwide 21

22. Period 6 (1997-present): managed float The baht can be compared against a number of currencies 22

23. 23