The Status of the Thai Baht in 2020: An Exotic Currency That Was Hit Hard
The Thai Baht saw a stellar performance in 2018 and a relatively good follow-up during 2019. However, throughout the last year, Thailand’s official currency saw its value plummet. What is the background of this loss in value and what does this mean for the Thai economy?
Thai Baht is a less-traded and desired currency
The Thai Baht is not one of the major currencies in forex trading – the buying and selling of foreign currencies on the forex market for a profit. The foreign exchange market sees transactions valued at trillions of US dollars daily and is the most-traded out of all financial markets. But 80% of its global volume is made up of seven currencies that are considered the ‘major pairs’ when traded against the US dollar and ‘minor pairs’ when traded against each other. These are the US dollar, the Euro, the British pound sterling, the Australian dollar, the Japanese Yen, the Canadian dollar, and the Swiss franc.
Source: Pixabay
By contrast, the Thai Baht is usually placed in ‘exotic pairs’, meaning that it is traded as a small economy currency against one of the seven major currencies. Being an exotic currency has little to do with location, but rather with the currency’s perceived trading strength. This is usually the case with currencies that are thinly traded because they are considered to be illiquid and volatile to market fluctuations. The trajectory of the Thai Baht over the last couple of years proves that the currency has still not found a stable pace as major currencies have.
2020 a volatile year for the Baht
In 2019, the Thai Baht was the best performer across Asian economies. Going into 2020, it started strong and was trading at 30.17 Baht per US Dollar. Yet tourism and export, the two sectors on which the Thai economy heavily relies, were hit hard during the rest of 2020. Predee Daochai, the Finance minister, predicted in August that the country’s economy will fall even lower during the second half of 2020. But according to his estimates, it is likely to bounce back in 2021. These comments have attracted the interest of some bullish investors who have been looking for long-term opportunities for growth.
Source: Pixabay
The volatility of the Baht is always counterbalanced not only by the booming Thai economy, which took a hit this year, but also on the country’s status as one of the biggest exporters of gold across the globe. Thailand is on the top ten of global leaders in gold exports and its market share has been steadily growing over the past years. In October 2020, the Thai Baht showed signs of growth. But due to the current state of the Thai economy, this is not yet a desirable outcome as it would put the currency at odds with financial activity on the ground. That is why the Thai central bank decided in mid-October to be more flexible in regulating overseas investment in 2021.
The Bank of Thailand hopes that this move would allow the outflow of more capital and help Thailand’s economy recover more naturally. Therefore, there are signs of promise for the Thai Baht ahead of 2021 after a problematic 2020, but the growth is likely to be gradual.
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