It might look unusual for an emerging market currency, but the Thai Baht, the currency of Thailand, has been one of the best performing currencies of the last decade.
Even at the peak of the current crisis, when many emerging market currencies tumbled and some states, such as Argentina, started negotiations to restructure their debt, the Thai Baht has held up relatively well.
The table below shows the performance of the Thai Baht against the Euro (we are used to EUR to THB, so we kept it that way). As you can see, after a decade-long rally, even in the middle of the pandemic, the Thai Baht has the same value as a year ago.
What are the reasons behind such a strong performance? In our opinion, there are two important factors underpinning the Thai currency.
1) Bank Of Thailand’s Sound Policy
The first reason lies in the policies carried out by the country’s central bank. Thailand was one of the victims of the Asian financial crisis in 1998-1999, experiencing massive capital outflows, a double-digit contraction, and a wave of bankruptcies, especially in the real estate sector. The Baht collapsed reaching its lowest level against the US dollar. After that dismal period, the Bank of Thailand has really strives to keep the currency under control at any cost: stable rates, capital controls, acceptance of economic recessions.
2) Massive Surge In Tourist Arrivals
The second reason is due to the country’s best performing sector: tourism. During the past five years Thailand has experienced a massive surge in the number of tourists. Its exotic islands and Bangkok’s bustling nightlife have never been more popular among tourists from the USA, Australia, Northern Europe, but also Japan and South Korea. More recently, Thailand has become the destination of choice for Chinese people, whose rising incomes have made them an attractive target for the Thai hospitality sector. Consequently, arrivals grew more than 50% just from 2015.
This huge horde of people translated into a massive inflow of foreign currency to Thailand, which pushed the exchange rate upwards. Essentially, the strong Thai touristic industry has the same effect on the economy than a competitive exporting sector, such as Vietnam‘s growing manufacturing base or Malaysia‘s oil and gas industry.
There are concerns in Thailand though that such a strong Thai Baht is a drag on exports and might be the cause for an unusually low rate of inflation. At the end of the day, could it be that the strong Thai Baht might be a little bit too strong?
Globartis Research
If you seek more trade data online, have a look at our country data page, which is part of our international trade platform.
