Why Thailand is not labeled a currency manipulator by the US? 

In spite of earlier fears, Thailand has not been added to the US Department of Treasury’s watchlist because Thailand does not meet two of the three criteria set by Washington.

In a report written by Tananthorn Mahapornprajuck, Senior Economist at Bank of Thailand, Thailand has not been added because Thailand may meet only one criterion among the three. Thailand’s current account surplus accounting for over 7 percent of the country’s gross domestic product (GDP) in 2018, against the limit set by the US Treasury of 2 percent.

However, Thailand’s trade surplus with the US is USD19 billion, against the limit of USD20 billion. Moreover, the amount of purchases of foreign currency does not increase from the previous year.

Countries that meet two of the three limits are placed on the watchlist. Hence, the US Department of Treasury on May 28 did not list Thailand on its watchlist.

However, the economists said Thailand should closely monitor the further development related to the listing of currency manipulators by the US Treasury Department.

The watchlist is a source of fears because countries labeled as currency manipulator may be subject to penalties or trade protectionism by the US which is suffering international trade deficits.

Earlier, Thai authorities were concerned about the possibility of being on the watchlist because the US has amended the criteria. The number of the US’ trade partners that has been included in this round of assessment increases to 21 countries, including Thailand, compared to 12 countries before.

The US used three limits to determine whether a country should be on the watchlist of countries using unfair currency practices. They include a trade surplus with the US of larger than USD20 billion, a current account surplus of higher than 2 percent of GDP, and the purchase of foreign currency amounting to more than 2 percent of the country’s GDP in a one-year period.

On May 28, the US did not add Thailand. However, it added nine trading partners on the watchlist, namely, Singapore, Malaysia, Vietnam, China, Germany, Ireland, Italy, Japan and South Korea.

Tananthorn noted that, from the US perspective, the foreign exchange intervention operation is meant to weaken a currency beyond the country’s economic fundamental in order to increase an advantage in terms of external trade.

However, she said that, usually, a central bank engaged in transactions in the foreign exchange market because of other reasons, rather than trade benefits.

For example, a central bank may take action to ensure its currency is not too volatile beyond the level acceptable by the economy or use foreign exchange as a monetary tool to curb inflation.

She also noted that the definition of currency manipulation is debatable because a country’s trade balance depends on various factors including its economic policy, domestic savings and investments.

Tananthorn added that Thailand should closely monitor the currencies of trading partners and follow the issue as seen by the US’ decision to amend the criteria in considering the currency watchlist amid the strong competition in the global trade.

Kasikorn Research Center said in its report last week that the Thailand’s absence from the US watchlist is good news for Thailand.

The think tank said Thailand could avoid being added on the watchlist because the US Dollar was appreciating at the time when the report was prepared by the US Department of Treasury. At that time, Asian currencies were softening as a result of capital outflows and weakening economic conditions amid the trade war, forcing central banks to sell foreign currencies so as to slow the depreciation of their currencies.

Therefore, Thailand and some other Asian trading partners, including Hong Kong, which pegs its currency to the US Dollar, do not meet the US conditions on currency manipulation.

Nonetheless, Kasikorn Research Center noted that in spite of Thailand’s exclusion from the list this time, since many ASEAN nations have been added to the US currency manipulation watchlist, this signals that Thailand is at risk of being closely watched in the future.

Moreover, Thailand’s trade surplus with the US is leaning towards the limit of USD20 billion. This is despite the fact that the acceleration of some Thai exports to the US has been caused mainly by adjustments in production chains of investors globally.

Meanwhile, Thailand should also seek new markets and enter into more free trade agreements in order to enhance long-term export and investment growth as the US may put trade pressure on Thailand on other means such as the review of the US generalized system of preferences (GSP) trade benefits, the center recommended.


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