Thailand currency

Central Bank of Laos attributes kip depreciation to currency converter manipulation — Radio Free Asia

Laos’ central bank blames the depreciation of the country’s kip currency on foreign exchange firms colluding to manipulate the market, but a lack of foreign exchange reserves and an import-export imbalance appear to be the real causes, experts said. sources in the country in FRG.

According to Asian News Network, the kip depreciated by 6% against the US dollar between January 4 and April 8. At the same time, the prices of imported household items increased by 15-50% between April and January. Vientiane time reported.

A Bank of Laos (BOL) report acknowledged the decline, saying that from February this year the kip entered a period in which it set record lows in valuation against the dollar. American and Thai baht.

The central bank has claimed the currency is depreciating as a direct result of manipulation by illegal currency conversion shops, but sources who operate these firms deny they are to blame.

“We exchange money on the basis of a free market mechanism and the banks cannot control anything. … The depreciation of the Lao kip is due to the fact that imports exceed exports. We are importing more and more,” a money changer and gold seller in the central province of Borikhamxay told RFA’s Lao service.

“For example, many businessmen import all kinds of products ranging from fertilizers, seafood and snacks from Thailand and they need a large amount of baht or US dollars to do so. They cannot get foreign currency from the banks, even if the banks set the exchange rate very low. They must use our service to get foreign currency to continue their business,” the money changer said on condition of anonymity for security reasons.

Because money changers must buy foreign currency at a high rate, they must also sell it at an even higher rate to stay in business, the money changer said.

Last month, economic police from the Ministry of Public Security and BOL officials raided illegal money changers as part of a broad crackdown, state media reported.

The intention was to stop the depreciation of the kip against the baht and the dollar. It would have worked if there had been real collusion between the money changers, rather than just the result of supply and demand, the money changer Borikhamxay said.

Under normal circumstances, business owners prefer to deal with banks, but banks have few reserves, forcing owners to turn to money changers, both legal and illegal.

“We cannot exchange our kip for baht or dollars at any bank. Even if we could, they would limit the amount of money we can have, and it wouldn’t meet our needs,” the money changer said.

Another money changer told RFA that the depreciation feeds on itself. Fewer people want the kip as its value decreases.

“Many people don’t want to hold the kip and it loses value very quickly. So many people are scrambling to get foreign currency in their pockets and wallets,” the second changer said.

A trade expert from the southern province of Savannakhet, who asked not to be identified, said a trade deficit with Thailand had had a destabilizing effect on the kip.

In 2021, Laos recorded a trade surplus of around $1 billion according to Chinese media Xinhuabut that included an $813 million trade deficit with Thailand, according to data from the Lao Trade Portal.

The trade portal’s most recent data, from March, showed a surplus of $100 million, but with a deficit of $162 million with Thailand.

Banks holding Thai baht drive prices higher and higher.

“Even when people try to withdraw baht from their baht-denominated accounts, they can only withdraw 200,000 baht, or $6,000 per account per day. For big bosses and business people, this policy makes everything difficult. The only thing they can do is go to exchange offices and accept their high exchange rates,” the expert said.

Another expert, who declined to be identified, told RFA that a crackdown on illegal money changers would do little to stabilize the kip.

“It would be much better to promote exports to be stronger, and eventually the kip will become strong itself under the free market,” he said.

He said Laos’ lack of foreign currency reserves was the main reason for the kip’s weakness against the currencies of its trading partners.

“Countries like China and Thailand have a much larger amount of foreign exchange reserves that would last for several months. If the BOL wants to solve the problem of kip depreciation, it would be better to let the exchange rate base itself on the free market, … or try to increase foreign exchange reserves or obtain more foreign exchange for meet market needs, which is very difficult,” he said.

A BOL official agreed that most banks do not have enough foreign currency to sell to consumers, although some may sell foreign currency on a limited basis.

“Anyone wishing to exchange kip for foreign currency must be a legal person, for example a company, business or organization claiming to make payments in foreign currency to companies abroad. The exchange will also have limits and any the world will not get the amount they want,” the official told RFA, speaking on condition of anonymity for confidentiality reasons.

According to the Lao Public Foreign Trade Bank, the official kip exchange rate was 12,666 kip to the dollar on May 6. A money changer in Vientiane told RFA that the free market rate on the same day was 14,050 kip to the dollar.

Translated by the Lao service of RFA. Written in English by Eugene Whong.