George Soros, his name might not be really famous among high schoolers, but his work in the 1900’s brought significant changes to U.S. and several other countries’ economy. To me, his most impressive feat was the time he attacked on the Thailand’s currency, which later lead to a series of economic wars in Asia.
It seems impossible to let a single man to make such an effective change with a country’s currency. However, looking back to it, it is actually interesting to examine this 1997 incident
Here is a graph that shows the exchange rate from Thai Baht to US dollars during 19’s to 20’s, which it was really stable until 1997 when it drops its value to the lowest, and that didn’t just happen occasionally.
Before Soros’s attack on Thai Baht, he had already had some successful cases: the attack on the British Pound. He and his company used the same strategies on every currency attack, and here is a simpler version of the principles; first, international spectators borrow the local currency of the target country throughout offshore markets, stocks and bonds. When they have enough currency in their hands, they will start selling them to suppress the currency exchange rate. The timing is very important, they will usually pick the time when there are rumors about target country’s economy so investors will hold their money.
Finally, when the currency devalues, the spectators repurchase the currency with low price, and the difference between exchange rate minus an interest required to deduct the borrower is speculators profit.
The main reason why Thailand was the first target of Soros and other international speculators was that in the first 10 years of the currency crisis is that, in 1997, Thailand’s rapid economic growth was behind the structural problems of over-reliance on foreign trade and trade deficit. This became one of their economic weakness and attacking point.
According to Soros himself, he and his company had already predicted the Asian financial crises on the January of 1995. Then, they started to buy in all the currency.
In Feb 1992, the Thai Baht had reached its lowest point in the past ten years when the Thai government finally saw the problem and started the counterattack. However, what the Thai government didn’t know is that at the beginning of 1997, the international spectators has largely purchased US dollars and had sold the Thai baht to forward foreign exchange transactions.
At the end of May 1997, the Thai Baht reached its lowest point (1 dollar = 26.6 Thai Baht). After rounds and rounds of buying and selling, Thailand couldn’t afford to keep this going since their central bank had already drained to only $60 billion – $70 billion. That was when this war ended– Soros and other spectators were the winners.