The Collapse of the Thai Baht - Essay Example

Client’s 17 October All the major Asian economies were severely hit in the 1990s; Thailand’s economy was no exception. The collapse of the Thai Baht sent shockwaves across the world, the government did take a no of steps to stop the freefall and this paper will shed light upon some of the most important measures taken by the Thai government to stop the downfall. Finance one was a major company in Thailand, the Thai government suspended the shares of the company and also tried its best to make an acquisition, a small Thai bank was supposed to acquire the much-troubled company but this failed to happen and the shares of the company plummeted further which only made matters worse.

The Thai government used a majority of its foreign reserves and bought the Thai Baht so as to give strength to its currency, people were selling Baht in mass numbers and this was further weakening the currency, this step of buying the Baht restored some much-needed stability and financial order in the country. “It cost the Thai government $5 billion to defend the baht, which reduced its "officially reported" foreign exchange reserves to a two-year low of $33 billion. In addition, the Thai government raised key interest rates from 10 percent to 12.

5 percent to make holding baht more attractive, but because this also raised corporate borrowing costs it exacerbated the debt crisis. What the world financial community did not know at this point, was that with the blessing of his superiors, a foreign exchange trader at the Thai central bank had locked up most of Thailand's foreign exchange reserves in forward contracts.” (Competing in the Global Marketplace) After making several attempts to save the Baht the government of Thailand ran out of reserves and resources and finally accepted that the peg had become implausible to defend.

They did make several efforts to save the Baht but they could not succeed. The Thai government had $1.14 billion in reserves and all of it was used and even then the currency could not be saved from a freefall. The Baht was allowed to freely float against the Dollar when the government realized that they had failed in all their endeavors. (World Economic Crisis) The picture above illustrates how the Baht collapsed in 1997 and the same had serious ramifications on the Asian Economy. Conclusion The government of Thailand made earnest several efforts to save the freefall of the Thai Baht, the most important measure perhaps was buying the currency by using their foreign reserves, over a billion dollars were spent on purchasing the Thai Baht but even after spending all their foreign reserves the government fell short of idea and accepted their defeat.

To conclude it is fair to say that the efforts were indubitably there but the Thai government got their strategy completely wrong and this is why the currency and the economy plummeted.