The Thai economy dodged a bullet last week, and not many people noticed. Newspaper headlines, when they appeared at all, noted the US government opted not to label China as a currency manipulator. The attention to China is understandable, given the existing and escalating "trade war" instigated by President Donald Trump. But most accounts of the biannual report of the US Treasury Department failed to note that the top target as a currency manipulator wasn't China, but Thailand.
As the Bloomberg agency noted after everyone let out their breath, "only one country" truly met the unique US definition of currency manipulation. Throughout his election campaign of 2016, Mr Trump repeatedly hammered home his claim that China fixes currency rates to boost its trade advantage. It is one clearly unkept campaign promise that he would name, shame and by implied extension punish Beijing. All of that rhetoric, combined with rules written long before Mr Trump appeared on the political scene, also exposed other countries.
It is vital to note that according to the US legal definition, a "currency manipulator" is a country that adjusts its exchange rates to gain a trade advantage. Of course, these days it's impossible for any country to simply state an exchange rate and expect everyone including currency traders to accept it. International currency rates are set according to literally hundreds of decision points. But the point made by the US Treasury Department -- and its current conservative secretary Steven Mnuchin -- is that even tiny gains or losses in a country's exchange rate can affect hundreds of millions, even billions of dollars of profit and loss in trade surplus or deficit.
The US under Mr Trump and his treasury secretary emphasise China's exchange rate progress. It is their contention that Beijing purposely trades foreign currency, gold and precious metals, goods and services, in order to keep the value of the Chinese renminbi, or yuan, at an artificially low rate. China has always denied this. Beijing maintains, and claimed again last week on the eve of the US market report, that while it occasionally tries to prevent sudden sharp swings in the value of the yuan, its policy is to let the currency find its own value on the world market.
This is also the officially stated policy of the Thai government and Bank of Thailand. Indeed, over the past two years and more, the value of the baht has increased and stayed far above where the Ministries of Finance and Commerce desire. The central bank has in the past few years openly admitted to buying and selling billions of baht worth of foreign currencies to try to "cushion" rapid changes. But the central bank, exactly like the Bank of China, claims it cannot and does not try to control the actual value of the baht.
Long-term evidence supports the Bank of Thailand on this point. Thai exporters have long said they would prefer the baht's value to be around 35 per US dollar. It has been two years since the baht was that low. Earlier this year, it almost hit 31 to the dollar, and it is currently around 32.5. That alone should be proof Thailand is no manipulator.
The US definition has two other parts. One is that the suspected manipulator has a strong trade surplus with the US. Thailand has a bilateral surplus above $20 billion. The US also officially suspects currency manipulation from countries that purchase foreign currency above 2% of GDP in a year, as Thailand does.
In the end, the US Treasury Department spared not only Thailand and China. Vietnam, Malaysia, South Korea, Japan and Taiwan also could have been slapped with trade penalties. All but one are considered US allies, and it is probable that international politics saved all countries accused. Washington should thus be asking if its definition of currency manipulation holds up in these times of globalised trade.