Baht Strength Puts Key Industries at Risk
Echoes of the 1997 Asian Financial Crisis
Recurring Inflows of Speculative Capital
The Thai baht has surged to a four-year high this month, straining domestic industries and fueling concerns across regional markets. While gold trading and a current account surplus have been cited as explanations, suspicions of illicit inflows—potentially worth about 15 billion USD—are growing. Analysts warn that the situation bears troubling similarities to the 1997 Asian financial crisis and the short-term speculative flows of 2007.
‘Unrecorded’ Funds Triple in a Year
According to Reuters on September 24, the baht has climbed sharply, reaching its highest level in four years. Its value against the dollar has risen more than 8 percent since January, even as major Asian currencies such as the won and the yen have weakened. The Bank of Thailand pointed to gold transactions and a current account surplus, but most analysts argue that rising gold prices alone cannot explain the surge.
Market watchers believe massive illicit inflows are behind the move. Reuters reported that Southeast Asian criminal networks are bringing illicit funds into Thailand, converting them into baht, and laundering them through purchases of assets such as gold and real estate. Official data supports these concerns: the balance of payments item “net errors and omissions” jumped from 5.4 billion USD in 2023 to 15.9 billion USD in 2024—more than tripling in a year. The unexplained rise points to unrecorded inflows fueling the baht’s strength.
The appreciation is hitting Thailand’s core industries. Tourism, which accounts for 18 percent of GDP, is facing mounting pressure. From January to September 21, foreign arrivals totaled 23.45 million, down 7.44 percent year-on-year, according to the Tourism Authority of Thailand. A weaker dollar has discouraged U.S. visitors since May, while more Chinese tourists are opting for Japan and Vietnam. As a result, tourism revenue this year is expected to fall 15–17 percent short of government targets.
From Baht Peg to IMF Crisis
Experts note parallels with the 1997 Asian financial crisis. At that time, the baht was overvalued, attracting a concerted attack from global hedge funds and currency dealers. Giants such as George Soros’s Quantum Fund, Julian Robertson’s Tiger Fund, and forex desks at JPMorgan and Citibank dumped billions of dollars’ worth of baht in expectation of a sharp devaluation.
The exchange rate then was 26 baht per dollar, equivalent to 0.038 USD per baht. Speculators bet it would weaken to 28–30 baht per dollar (0.036–0.033 USD per baht), generating massive profits. Initially, the Bank of Thailand’s interventions held the line. It deployed 150–200 billion USD from foreign reserves and coordinated with neighboring central banks in Singapore, Malaysia, and Hong Kong, injecting another 120 billion USD. The currency briefly strengthened, reaching 24 baht per dollar (0.042 USD per baht) in June, and speculators suffered heavy losses.
But Thailand’s underlying weakness—a foreign debt load of 87 billion USD—remained. Speculators mounted a second attack, and by July, Thailand abandoned its defense, shifting to a floating exchange rate. The crisis spread rapidly across East Asia, triggering the historic IMF-led financial meltdown that engulfed Korea, Indonesia, and Malaysia.
These echoes explain today’s anxiety. If the baht’s strength is a natural byproduct of trade surpluses and gold flows, the risks are manageable. But if speculative capital is artificially driving the surge in hopes of a sharp reversal, the fallout could exceed 1997. In nearly three decades, global capital has become even more mobile, well beyond the control of Thai regulators. Analysts warn that the baht’s rise could once again act as a detonator for regional financial instability.
Regional Financial Uncertainty Intensifies
The sense of déjà vu recalls 2007, when the baht appreciated about 9 percent in a year, the sharpest among Asian emerging currencies. Then, the trigger was large inflows of short-term capital amid a weak dollar. Investors sought quick profits in Thailand’s relatively loose regulatory environment, and the baht soared. The episode exposed once again the structural vulnerability of repeated capital inflows and outflows.
In response, the Bank of Thailand introduced emergency measures beginning in late 2006, including a requirement that 30 percent of foreign inflows be held in reserve, restrictions on bond and stock trading, and higher ceilings for outbound investment. But instead of restoring confidence, these policies spooked markets and triggered a stock market crash. While the currency briefly stabilized, the unpredictable regulatory swings deepened perceptions of Thailand as a risky market.
The shock extended beyond Thailand. Major currencies such as the won and yen also appreciated, hurting export competitiveness in Korea and Japan, squeezing corporate margins, and dampening domestic demand. Thailand’s erratic currency policy and vulnerability to short-term capital thus reverberated across East Asia, amplifying financial instability. Combined with the onset of the U.S.-led global financial crisis the following year, it added yet another layer of uncertainty to global markets. For many, the episode reinforced the view of Thailand as a fragile link in the chain of global financial stability.