The rising clamour of a world heading into conflict is making its presence felt on media channels with talk of de-dollarisation as the coming conflict is portrayed to be a battle for dominance between the existing US-led world order that has kept the peace since 1945 while trying to foster a better world and another bloc of authoritarian or troubled states who sense American weakness while being challenged by a principled international foreign policy being pursued ardently by the Biden White House that puts democracy and human rights ahead of business as usual while insisting on upholding the international rule of law. Sooner or later Thailand must choose between the two.
Thailand’s Bank of Thailand announced this week that it will hold talks with the People’s Bank of China about a stronger Yuan Baht settlement arrangement as speculation grows about de-dollarisation in an agenda being openly and aggressively pushed by China and Russia through their propaganda networks as the world hurtles towards either a geopolitical conflict or at the least, a world economy divided between two blocs. Thailand has long played a game of ‘running with the hare and hunting with the hound’ between great powers but the time is drawing near when a choice will have to be confronted as the United States pursues an economic policy in the Indo-Pacific which is actively political in nature with external circumstances, especially concerning Taiwan and China’s more assertive posture, pointing to increased potential for conflict and economic disruption.
Thailand is moving towards greater use of the Chinese Yuan as the Bank of Thailand prepares for talks with the People’s Bank of Thailand, its Chinese counterpart, to discuss the greater use of the Yuan Baht settlement arrangements aimed at allowing business concerns to insulate themselves against increased market risk and volatility caused by geopolitical tensions.
There is an escalating concern in Thailand about the impact of world instability on Thailand’s ability to generate GDP through exports and the volatility of the baht against the US dollar.
Baht saw a 16-year low against the US dollar in September 2022 with a pattern of current account deficits now corrected by a rebound in foreign tourism
In September 2022, amid a rapid tightening of US monetary policy to ward off inflation, the baht fell to ฿38.46 against the US currency, its lowest rate in 16 years while less than two years previously it was quoted as low as ฿29.77 against the dollar.
The cause of the baht’s low last year was not just US policy tightening but also a disturbing trend towards current account deficits that the country, at the beginning of 2023, appeared to shake off with stronger current account surpluses in February and March driven by a rebound of Thailand’s extremely powerful foreign tourism industry
It should also be noted that Thailand’s last and most damaging financial crisis in 1997 came as a result of Thai authorities overvaluing the bath by pegging it at a rate of ฿25 to the greenback before an implosion caused by speculation on the markets which depleted the country’s foreign reserves after the country’s overvalued currency left it with a spectacular current account deficit.
Thailand has learned well from its 1997 disaster and has a very strong and well-capitalised financial system, a blessing in a very uncertain world
At that time the country faced a crisis caused by its balance of payments and within its banking system.
Today with foreign reserves of $223 billion, a well-capitalised banking system and over 98% of its public debt held in Thai baht, Thailand has an enviably strong financial profile.
The current concern is for its economy and the uncertainty that has been created as its two main economic partners engage in a trade war which is now also becoming a financial war as investment from the US into China is being discouraged while Thailand and other Southeast Asian countries attempt to navigate a safe course in increasingly choppy waters.
Indeed, only this week, Bank of Thailand Governor Sethaput Suthiwartnarueput warned Thai voters about populist policies stating that, right now, the financial stability of the kingdom was more important than short-term economic growth.
Bank of Thailand frames the latest talks with the Chinese central bank in the context of ongoing efforts to provide more stability for the Thai baht
Mr Sethaput appeared anxious this week to frame the latest round of talks with the Chinese central bank, which are expected to include a meeting in May, as a continuation of a policy following renewed efforts in 2021 to boost the use of yuan baht currency swap arrangements which China is promoting in Southeast Asia to strengthen its financial links and trade with countries in the region as part of its ongoing trade war with the United States.
At the same time, the United States, while rapidly advancing its de-coupling agenda from China which has also seen investors pull out of Taiwan, as business make their call on prospects for the self-governing island state, has also put forward its Indo-Pacific economic relations framework which Thailand has signed up for.
US to unveil new economic relations framework for Asia at ASEAN Summit as China Warns of new cold war
This vague framework, essentially a technical policy agreement, appears to be linked to securing US supply chains and sets out to link continued trade with the United States with higher standards in governance, the environment and human rights with the economic policy being pursued in the Indo-Pacific by the Biden administration.
Threat of de-dollarisation ignored by a determined and decisive US foreign policy which boils down to a struggle with China and authoritarian forces
The line is being drawn by the United States while critics of the American President and even arch-conservatives in Washington DC warn about the threat of de-dollarisation because of the harnessing of American economic power and the US dollar to political goals.
This has been justified since the Russian invasion of Ukraine with the dollar’s share of world trade falling from 55% to 47% after vicious and swingeing economic sanctions on Russia including the highly controversial seizure of $300 billion in Russian reserves belonging to the Russian central bank by the United States.
The United States is playing its hand also in response to China’s posture on Taiwan, a tactic which US officials openly admit to, confirming that China is the target of a warning.
This has led to Russia and China’s deeper cooperation.
In recent months, both countries reached out to potential allies such as Iran or those with conflicts with the United States which remains the world’s dominant economic and military power.
Thailand’s central bank also pursuing alternative payment arrangements with ASEAN countries and is moving to curb the use of cash in the economy
This is why the United States remains Thailand’s largest export market although its trade with China is larger than any other country while Hong Kong, another key Thai trade partner, is now also more firmly under Beijing’s control.
Governor Sethaput, this week also stressed that Thailand was also pursuing similar local currency swap arrangements with Japan through its Ministry of Finance as well as Bank Negara Malaysia and Bank Indonesia to assist Thailand’s trade in Asia.
Thailand teams up with other Southeast Asian nations to create a new cross-border QR code payment system
Thailand’s central bank is also aiming to curb the use of cash which is traditionally a strongpoint worldwide for the US dollar, while in November 2020 at the G20 Summit in Bali, Indonesia, Thailand signed a memorandum of understanding with Indonesia, Malaysia, the Philippines and Singapore on the use of a QR code system to facilitate cross border payments and trade.
A divided world where Anti-American sentiment is galvanising as countries resist what they see as the hegemony of the United States and its agendas
The Chairman of the Federation of Thai Industries (FTI), Kriengkrai Thiennukul, in recent days, has called on the Thai government to clarify its position regarding the rising geopolitical conflict.
This lately appears to be dividing the world into two opposing camps with Western countries committed to democracy and the highest standards of human rights on one side and an alternative alliance with a common anti-American cause.
Part of the reason for this is antagonism created by what some conservative countries see as the increasingly radical political agenda in the United States as well as America’s traditional goals of upholding democracy and human rights.
US heading into a constitutional crisis with the baht surging against the dollar and worried expats as events unfold
The enemies of the United States also detect weakness with the rise of polarised politics and deep-set divisions in the country as well as the debacle over the November 2020 General Election, an issue that still divides.
FTI President warns Thailand needs a firmer strategy on the growing rift between China and the United States as well as on an East and West divergence
Russia and China appear to be fashioning themselves into the axis of a coalition from among others, the BRICS countries of Brazil, Russia, India, China, and South Africa as well as regimes that oppose or are in simmering conflict with the United States, a list which currently also includes Saudi Arabia whose crown prince and de facto leader has been alluded to by the Central Intelligence Agency (CIA) in its reports as being involved in the murder of 9-year-old Saudi journalist Jamal Khashoggi in October 2018.
France’s President appears to break ranks even within the European Union on an April visit to China
Even France, through President Emmanuel Macron, has displayed its historic antagonism to US world dominance as the European country smarts at the recent AUKUS alliance in the Indo-Pacific to counter China between the United States, the United Kingdom and Australia, and the cancellation of a lucrative French submarine order, when he suggested a more independent role for the European Union in its relationship with China on a visit to the communist country in early April.
This speech in China has drawn strong criticism in particular from other European states and top officials who support a stronger stance on countering China.
The European Inter-Parliamentary Alliance on China (IPAC) in Brussels slammed the French leader and described his comments as ‘severely out of touch’ while warning Macron: ‘You do not speak for Europe.’
In the meantime, Chinese and Russian disinformation and propaganda networks talk up the de-dollarisation of the world which has seen movement in world trade away from the greenback, as the world appears to be hurtling towards a new war.
American investment pulls out of China and Taiwan
This month, one of America’s wealthiest men, the canny 92-year-old investor Warren Buffett through his Berkshire Hathaway holding company sold his firm’s stake in the highly successful Taiwanese chip maker TSMC.
He admitted that geopolitical risks were a factor while, at the same time, the world’s reputedly richest man, Elon Musk, announced a new battery factory for Tesla in Shanghai going against the trend as US investment in China dries up.
The 92-year-old Buffett, dubbed the ‘Oracle of Omaha’ is known for his canny investment strategies, one of which is that he never bets against America.
Not so, apparently for Mr Musk, who last year became the owner of Twitter for $44 billion to champion free speech.
This week, he also agreed that the de-dollarisation of the world economy is underway after interacting with a user on Twitter who pointed out the fact that since the Russian invasion of Ukraine, the use of the dollar has declined from 55% to 47%.
In the previous twenty years from 2001 to 2021, it had fallen from 73% of world trade settlements to 55%.
‘If you weaponize currency enough times, other countries will stop using it,’ the Tesla boss and ‘Chief Twit’, tweeted this week.
Speculation on the dollar’s downfall may be premature while the imperative of confronting China may even be a more realistic short-term prospect
However, speculation about the downfall of the United States and the dollar may be premature.
It is yet conceivable that US policy is designed to confront what the Biden administration sees as enemies of democracy and personal freedom in a world showdown, one that may be better off happening today rather than years later or one where open hostilities can be avoided as a new world divide is created between a democratic order and non-democratic one or put another way, where the US economy and the free market system are no longer allowed to be exploited by authoritarian forces with a different mission, agenda and vision such a China maintains.
The United States is by far the world’s largest military power and many would argue that as well as its economic might, there is an inherent strength in the principles and values on which the country was built, the same principle behind Mr Buffett’s long-held wisdom.
The continuing and deepening trade war between the United States and China is widely believed to have begun in the Trump era as a response by America to the deterioration of standards in China with a rise in human rights abuses and market manipulation with a more authoritarian regime in Beijing under President Xi Jinping since 2012.
The change in the dynamics in the US-Chinese relationship did not begin with Trump but with a more hawkish policy under President Xi Jinping
The policies of China under President Xi Jinping are not the policies pursued by his predecessor President Hu Jintao or the economic agenda pursued by Communist Party leader Deng Xiaoping who opened up China to the miracles that can be achieved through free markets, economic freedom and capitalism.
This is a reactionary regime that at the 20th Communist Party Congress last October publicly placed China on a war footing and whose hardline Foreign Minister, Qin Gang, recently warned of all-out war if the United States does not change course, especially on Taiwan.
This was caused by the policies of President Xi who has now become a dictator in all but name and who has advocated policies that are aimed at making China self-reliant while increasing spending on the build-up of its military.
This policy is believed to be a key factor in retarding Thai exports since 2017 and may well be contributing to the disappointing performance of Thailand’s exports to China after this year’s reopening.
The Bank of Thailand has itself warned about this in its most recent projection only predicting a 4.2% rise in the kingdom’s exports in the last 6 months of 2023 following a projected 7.1% drop in the opening six months.
Dollar accounts for 58% of the world’s currency reserves, the Chinese Yuan only 3%. Which country is the more trustworthy as a player of last resort?
Critics of the dollar point of its decline as a share of central bank currency reserves since 1999 which is different to trade as it signifies trust, prudence or risk assessment.
The US dollar still accounts for 58% of all reserves compared to just 3% for the Chinese Yuan. The dollar, in fact, has over twice as much as the Euro, Yuan, Pound and Yen combined.
The nearest other reserve currency is the Euro which demonstrates that the currencies of the United States and European Union account for 78% of world reserves against China’s 3% for the Yuan.
This of course relies on trust in the rule of law, institutions, the strength of will, character and the means to uphold them.
China with its self-admitted false economic data, heavy-handed interference in markets and private sector entities as well as its chronic problems in its property and banking sectors that are not fully understood or appraised, simply does not fit the bill as a trustworthy player of last resort.
US and global investors beginning to see China as an investment going wrong like Russia with geopolitics overriding other commercial considerations
As many US investors now see it, it is another Russia just waiting to happen and this has many, despite the efforts and collusion of giant US merchant banking behemoths on Wall Street who have profited handsomely from investment in the communist country, becoming wary and bearish on China.
The response to continued investment in China after its recent reopening has been lukewarm and trending downwards despite the cheerleading of investment firms looking for client commissions.
No one wants to bet against the United States except its enemies and that list recently contains Saudi Arabia under its current suspect leadership. A roll call of honour, it is not.
The idea of a one-way bet on China for international investors has now completely reversed itself leaving many economists and analysts who had grown fat and continued to dine out on what was once considered dogma or accepted wisdom sputtering in disbelief as their vision of a benevolent and self-correcting China disintegrates.
They also appear to be confounded by the notion that a nation such as the United States can decide, perhaps too late in the day, some would say, to put priorities such as human rights, personal freedoms and upholding fundamental tenets of international law ahead of profits.
That element of honour or trust is why critics of the United States point to the damage done by the seizure of Russian foreign reserves last year as ultimately damaging to its government and the US currency, but was it?
A principled international foreign policy that appears to be confusing ‘out of touch’ cynical analysts who have grown fat on 20 years of convention
Could this be a principled stand against any country that invades its neighbour demonstrating the strength of character, the will to uphold international law without which everything devolves to the barrel of a gun?
Luckily, for the United States and the world, its guns are bigger, more advanced and lethal. The battlefield in Ukraine hints at this.
What’s more, the people behind them are acting based on long-cherished principles going back to the late eighteenth century when man began to be uplifted from barbarity by well-conceived laws and key principles that still apply today, certainly in Western countries.
This rule of law, twice, in the last and bloody 20th century, rescued the world from undemocratic and oppressive forces driven by raw and demonic nationalism.
One of those countries was Thailand which was invaded by the Japanese Empire on 8th December 1941 and partially occupied.
It is a familiar story and indeed the parallels between Communist China and Nazi Germany in the 20th century are becoming difficult to avoid.
An economic miracle that turns sour, concentration camps and a leader who overplays the nationalist card while being oblivious to the human rights of minorities.
Can anything be more plain?
Hard reality, the world is on the verge of war
The fact is that this is not just rhetoric, this is now a reality in the dangerous geopolitical world that has grown up around us notably since the pandemic shutdown and emergency, which should give everyone pause for thought particularly foreigners in Thailand or who are linked to the kingdom.
It is now both America’s foreign policy and increasingly its economic policy in a world where young people no longer accept the cynicism of realpolitik.
The next American President, be it Joseph Biden, Ron DeSantis or Donald Trump is unlikely to change this trajectory as the United States stands up for what it believes in against a wide and growing coalition against it.
Thailand’s days of running with the hare and hunting with the hound are drawing to a close whether its government is willing to face up to it or not.