20th Anniversary of the Tom Yum Goong Crisis and 3 Impossible Things

     Of course, this may sound confusing, so let me provide an example to clarify it within a minute.

     Currently, all countries in the European Union (except the United Kingdom) have fixed exchange rates among themselves and allow free movement of capital, which is option A.

     Whether we go to France, Germany, or Italy, we will use only the euro. However, all these countries must give up one thing: an independent monetary policy.

     You will notice that whenever interest rates are adjusted, all EU countries must listen to the European Central Bank.

     Another country with a similar situation is Hong Kong. This country has its currency pegged to the US dollar. If it wants free movement of capital, Hong Kong must relinquish its own monetary policy. Thus, we see that Hong Kong's interest rates follow those of the United States.

     Most other countries around the world choose option B, which is to have an independent policy. However, if they also want free movement of capital, they must allow their exchange rates to float.

     As for option C, very few countries in the current free world can use this choice, except for one special country: China.

     China has its own monetary policy and sets its currency value independently, but it still controls the flow of capital.

So what did Thailand do wrong 20 years ago?

     Twenty years ago, Thailand was trying to defy this impossible triangle. Thailand wanted free capital movement, an independent monetary policy, and was simultaneously pegging its currency to foreign currencies.

When one tries to defy the impossible,

Eventually, Thailand had no choice but to shift from option A, which was being forced, to option B, as it is today, 20 years ago.

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