The Rebirth of the Financial Hegemon

"Okay, thank you very much for your reminder and help. On behalf of the Thai people, I also thank your country for your sincere assistance..."

Bangkok, inside the Bank of Thailand.

Governor Sonny was chatting on the phone with Li Xianchong, the director of the Monetary Authority of Singapore.

Sonny's tone and attitude were very humble, and his face showed gratitude from the bottom of his heart. He did not consider that the two parties were equal in terms of positions.

My family knows their own affairs.

Sonny's ability to serve as the governor of the central bank was not entirely due to his family's power. He still had real skills in his understanding of finance.

As the governor of the Bank of Thailand, he is well aware of the crisis Thailand is facing.

After the Mexican financial crisis occurred in January 1995, international capital has set its sights on emerging market countries.

Investment banks such as JP Morgan, Citigroup, and Goldman Sachs, as well as Soros Fund and Tiger Management respectively launched tentative attacks on the Thai baht in July this year.

That time, the Bank of Thailand, together with the Monetary Authority of Singapore and the Monetary Authority of Hong Kong, intervened in the market, and the short attackers were temporarily repelled.

The major short sellers lost about $600 million on the market.

At that time, Quantum Fund, led by Stanley Druckenmiller, also launched an attack on the Thai baht, but ended up with a cumulative loss of US$70 million.

The offensive logic of the short sellers is that the total circulation of Thai baht is rapidly expanding, but the Thai government's foreign exchange revenue-generating ability has shown a rapid downward trend.

To put it simply, the international supply of Thai baht exceeds the demand.

Sonny also knew this very well.

When Sonny attended a conference in Tokyo at the beginning of the year, a scholar who was close to the Japanese Ministry of Finance at the time mentioned a topic in casual conversation.

"If the exchange rate of the Japanese yen to the US dollar becomes 150:1, will the Thai baht abandon its fixed exchange rate policy?"

Sonny thought the issue was important at the time, but never realized it was so critical.

In April 1995, the exchange rate of the Japanese yen to the US dollar reached a peak of 80:1.

By 1996, Japan's economy experienced a small recovery, and the exchange rate of the Japanese yen to the US dollar was approximately 104-116:1.

Japan is Asia's largest economy, while Thailand is the country most vulnerable to yen arbitrage foreign exchange attacks, because 55% of Thailand's foreign debt is in yen, and Japan is Thailand's largest source of foreign investment.

Because Japan's GDP alone exceeds the combined GDP of other Asian countries, and its financial assets are about twice that of other Asian countries.

As the world's second largest economy, Japan's trade volume accounts for about one-fifth of East Asia's trade.

From the late 1970s, Japan began to build its global supply chain.

It first obtained raw materials from Asian countries, then purchased cheap parts and components, and sold the finished products mainly to the United States, then Europe and other parts of the world.

The expansion of manufacturing supply chains is sometimes referred to as the "flying goose model."

Japan is the leading goose, followed by the "Four Asian Tigers" (South Korea, Taiwan, Hong Kong and Singapore), then the "Four Tigers" (Thailand, Malaysia, the Philippines and Indonesia), and finally China.

Within the system supply chain network, there are two currency standards: US dollars and Japanese yen.

In September 1985, the "Plaza Accord" allowed the prices of the yen and the euro to strengthen in the international market.

In less than two years, the yen-to-dollar exchange rate rose from 240:1 to around 120:1 in December 1987.

By 1990, Japan's real estate and stock markets were fueled by banks.

A huge bubble was created. The Plaza Accord led to an overvaluation of the yen and its subsequent decline.

The excessively high yen led Japan to invest heavily in the U.S. stock market, which partially contributed to the 1987 stock market crash in the U.S. market.

In 1989, Japan's real estate market value was estimated to be approximately US$24 trillion, four times the land value of the United States, while Japan's GDP was only 60% of that of the United States.

After the bubble, Japan had to change the country's overall strategic investment direction. Under the guidance of zero interest rates, a large amount of Japanese yen began to flow from Japan to emerging Southeast Asian market countries.

But two things happened after this.

After the Great Kobe Earthquake on January 17, 1995, and between March 20 and April 19, the exchange rate of the Japanese yen against the US dollar began to depreciate after reaching a peak of 80:1.

The earthquake reconstruction plan stimulated the expansion of infrastructure investment in Japan, and the depreciation of the yen stimulated exports, resulting in a slight recovery of the Japanese economy in 1996.

As the yen weakened, the Bank of Japan began to take advantage of the weakening yen to recoup its overseas loans.

This is really going to kill you.

Fifty-five percent of Thailand's external debt is in Japanese yen.

As Japan's overseas loans shrink, it will be difficult to borrow the money back.

It's like a company.

When a bank suddenly blocks a loan, it can choke a company alive.

Thailand is like this company, which suffered immediately when the credit scale of Japanese banks shrank.

What's even worse is.

Previously, major central banks around the world believed that the United States would continue to raise interest rates.

Because U.S. interest rate policy tends to be cyclical.

But no one expected that Federal Reserve Chairman Alan Greenspan would persuade other colleagues to end the U.S. dollar interest rate hike policy and lower interest rates.

This means that the U.S. interest rate hike cycle is over and may enter a rate cut cycle.

If interest rates are cut, the return on depositing money in the bank will decrease, and may even decrease to the point where it cannot keep up with inflation.

In this context, those funds that are sleeping in the bank will be forced to flow out of the bank.

Capital always pursues profits.

When large-scale capital flows out of banks, it will inevitably promote the strengthening of the U.S. economy.

This point has been well reflected in the U.S. stock market.

In the century-old economic laws of the United States, the characteristics of the stock market as a barometer are very obvious.

After the Federal Reserve's interest rate decision, the Dow Jones Index and the Nasdaq Index began to enter an upward trend, and the real estate industry in the United States, which had been deserted, also began to recover.

Where there is income, there is investment.

With visible returns, global capital has begun to flow into the United States, further pushing up the price of the U.S. dollar.

The consequence of this is that capital in Thailand can also start to convert Thai baht assets into US dollars to flow out.

If it were just this, the pressure on the Thai baht would not be that great.

What's even more embarrassing is that the Japanese yen suddenly announced an interest rate hike at this juncture.

From the position of the Bank of Japan, it is certainly right to raise interest rates.

Japan's economy in the past six months has recovered for the first time since the Japanese real estate and stock market bubbles burst.

This sign shows that Japan's local economy is improving.

If the Japanese yen raises interest rates, some of the Japanese yen can be driven back to local investment.

Moreover, the Japanese yen has chosen to actively depreciate, which can also improve the global competitiveness of Japanese products.

As the world's second largest economy.

Whether it is high-tech, modern industry, or agriculture, Japan has far greater power than other countries.

Otherwise, it would be impossible for a single company's total annual exports to exceed the exports of the entire country of China.

If this competitiveness improves again, Japan's life will be better.

As the U.S. economy strengthens, life is better for the U.S., and as Japan shrinks its overseas investment scale and improves the competitiveness of product exports, Japan's life is also better.

But while they are having a good time, others are having a hard time.

Wealth is created only in some entities.

Once viewed holistically, wealth is actually always a process of exchange.

As the US dollar strengthens and draws blood, and as the yen shrinks the scale of overseas investment, it is undoubtedly equivalent to digging a huge hole for emerging market countries in Southeast Asia.

Thailand, in particular, immediately became the country with the greatest pressure.

Thailand's economic development is mainly driven by overseas capital.

Now these capitals want to withdraw their investment from Thai baht assets into US dollars, which is equivalent to draining the blood of the Thai government.

Japan's strategic adjustment and shrinking overseas investment are forcing Thailand to repay its debt.

What’s even worse is.

Thailand used to rely on fixed exchange rates to sell agricultural products, low-level processed products and jewelry to earn some foreign exchange.

The current depreciation of the yen has greatly affected Thailand's export industry.

In just six months, Thailand's export revenue has dropped by nearly half.

The way to make money is to increase revenue and reduce expenditure.

Now the situation in Thailand is reversed.

The United States draws blood, Japan demands debts, and the things at home are so suppressed that they cannot sell them.

It must have been a very difficult time.

If that's all it is, you can still get through it if you hold on for a while.

In the past twenty years of development, Thailand has accumulated a lot of wealth.

Coupled with the two powerful allies of Singapore and Hong Kong, as long as we get through this period, we can think of other ways in the future.

When ASEAN's influence expands in the future, Thailand's status in ASEAN will be able to slowly make up for the hollow defects left by the rapid development of the past two decades.

But who knows that people’s calculations are not as good as God’s calculations.

While the Thai government was making plans, the Myanmar government kept silent and dug a hole later.

The big drug lord Khun Sa has been selling drugs to the United States and Mexico for many years.

Everything he earns is in dollars.

After the Myanmar government reached an agreement with Khun Sa, it refused the U.S. government's extradition to Khun Sa in order to gain support from the dollars in Khun Sa's hands.

This gave the US government an excuse to impose economic sanctions on Myanmar.

As a neighbor of Myanmar, everyone can imagine that Thailand will also be affected.

In July, international capital launched a tentative attack on the Thai baht, although it was repelled each time.

However, the groups behind these capitals have never stopped making negative remarks about the Thai baht internationally.

You can guess with your ass that these capitals are still looking for opportunities to launch their next attack on the Thai baht.

For this reason, Sonny, the governor of the Bank of Thailand, has been worried.

If the Thai baht is unable to sustain the expansion of ASEAN's influence, then Thailand may be beaten overnight, let alone replace Hong Kong as Asia's financial center, decades ago.

No matter how strong the defense is, there will always be a day when loopholes appear.

The ants kill the elephant.

Even the most powerful British Empire at that time collapsed under the repeated attacks of international capital, let alone Thailand.

It is true that Thailand raises elephants, but Thailand’s overall strength is probably just an elephant’s legs.

If it really wants to be targeted by international capital and bitten every day, and domestic capital continues to flow out, if this continues, it will be eaten alive sooner or later.

Therefore, Sonny hated his neighbors with a passion.

Distant relatives are not as good as close neighbors.

Myanmar is a good neighbor. It ignores the overall interests of ASEAN and digs a hole behind the scenes for the sake of the US dollars in Khun Sa's hands.

Then....

Being jointly imposed economic sanctions by Europe and the United States, the Myanmar currency collapsed without the need for international capital attacks.

In this case, the situation in Thailand is definitely worrying.

One pit after another, outsiders dig holes and neighbors dig holes.

As long as those international capitals are not stupid, they will definitely seize the influence of Myanmar to launch another attack on the Thai baht. When the domestic foreign exchange reserves are exhausted, Thailand will be buried alive by these pits.

as expected.

Sonny judged that international capital would seize the opportunity of the collapse of the kyat to attack the Thai baht, and it came true the next day.

Billions of dollars in sales of Thai baht immediately emerged in the spot market, and futures contract positions in the forward financial market also began to increase rapidly.

BOT can catch one day's selling and one week's selling.

But if it continues, it will be beaten to death by those international capitals.

As the governor of the Bank of Thailand, Sonny not only knows his own background, but also understands what the herd effect is.

Once the front cannot stop it, the selling from behind will drown Thailand like a tide.

Even the Bank of England cannot withstand the tide. Once a gap is opened, Thailand will definitely not be able to withstand it even if it has ten more allies.

After thinking for a long time, Sunny had to ask his ally the Monetary Authority of Singapore for help.

Although Thailand wants to compete with Singapore, Sonny has to admit that Singapore still has more experience in finance than Thailand.

This is why Sonny is grateful to Li Xianchong.

When Sonny asked for help, Lee Xianchong, chairman of the Monetary Authority of Singapore, gave Sonny a fairly good solution after consideration.

Li Xianchong serves as the Deputy Prime Minister of Singapore and the Chairman of the Board of Directors of the Monetary Authority. He has certain insights in philosophy, economy, and military.

He knows that given the current situation in Southeast Asia, if the Thai baht fails, Singapore may also become a target of international capital.

Li Xianchong had already vaguely felt that the US government would never give up on ASEAN issues.

These international capital's tests of the Thai baht may not be without the United States and Japan making small moves behind the scenes.

Everyone knows that once ASEAN's influence expands, it will have an impact on the world economic structure.

As the largest and second largest economies, no one wants their position to be threatened.

Li Xianchong thinks.

When soldiers come to cover up the water and earth, that's when the strength far outweighs the opponent's.

With the amount of foreign exchange reserves currently held by Thailand, it would be very passive if it really wanted to compete with international capital for a long time.

Nowadays, all countries in Southeast Asia are full of pitfalls.

If someone else digs a hole, they can only pass it on.

If you have to guard against thieves for a thousand days, you will definitely not be able to guard against them.

Only by killing the covetous capital to the point of fear can we scare away those ferocious beasts that choose the opportunity to eat meat.

Finally, Li Xianchong made a suggestion.

Show the enemy weakness and lure them deeper.