Forex crises from Thailand to Laos

Thailand taught me the destructive power of the currency markets, but it was in neighboring Laos that I learned it was also an excellent trading vehicle.

I was still in Thailand when my friend and I planned a trip to Laos. While she studied the Let’s Go guide, I scanned the currency prices in the Bangkok Record and on lighted boards outside exchange vendors. The aftershocks of the Southeastern currency crisis could still be felt in Laos. The economy was weak at best.  The country’s currency—the kip—was directly linked to and reliant on Thailand and foreign investment for survival, which didn’t bring more stability. In fact, at the borders of Laos and Thailand the agents would accept only U.S. dollars or baht for entry fees, rejecting their own unstable kip.

As I crossed over the border into Laos in February 2000, one U.S. dollar bought 7,500 kip, one Thai baht bought 200 kip, and 37 Thai baht bought one U.S. dollar. I was a poor student in Southeast Asia, desperate to shave off any cost of living that I could. The currency exchange rate seemed like the ideal way.

Because of the exchange rate mechanism, all currencies are in

balance (efficient markets with no opportunity to arbitrage). But

there was a very viable gray market. Each participant in this market

needed or valued a specific currency differently. The banks wanted U.S. dollars for stability, and the street vendors preferred

baht because it was safe and convenient. The kip was good for small purchases such as noodles.

The nice thing about physically trading a currency such as the kip was its large exchange rate denominations. Each time I traded dollars for kip, I could easily make a 1,000- or 2,000-kip profit. I know that isn’t much more than a few pennies, but that wasn’t the point. The point was that I could count the returns. After a few transactions I was up 10,000 kip, and that was literally a stack of cash I had generated from nothing.

Armed with the buy/sell exchange rates, I toured Laos—a living, breathing trading desk. Each day, I looked for banks, money exchangers, or private individuals who would offer exchange prices better than my base price.

At first I was looking for straight cash exchanges. A participant would say he would give me 210 kip for one baht. Because I knew the bank exchange rate was 200, I would make a few kip. Other times I would find arbitrage in the exchange of goods and services.  A cab ride was 40 baht or $1; I could pick the better trade.

I was hooked. I spent my whole trip looking for exchange rates.  And the kip started to build up. After a few days, I had made enough to buy a lunch of noodles and a French-style sandwich on my profits in the streets of Laos’s capital, Vientiane.