1. The war that broke out in Asia in December 2484 (1941) isolated Thailand from all countries other than Japan and the territories she occupied. The traditional baht – sterling link was cut automatically and the only international monetary transactions possible were those in yen. The force of circumstances, no less than the Japanese Government, compelled Thailand to link her currency to the yen. This is a fundamental, even if temporary, change in the currency system; and it is of this change and its aftermath that a description will be given in the simplest terms. This Memorandum will therefore commence with a summary of the essential features of the currency system obtaining prior to the outbreak of war. It will thereafter enumerate the major changes made necessary by the war. Finally, a summary will be given of the use of bank credit and currency issues to finance the Government and the Japanese Military Authorities during the war and the effect of certain agreements made with Japan, particularly as affecting the currency position. Figures will be given up to June 2488 (1945). The sole aim of the Memorandum is the presentation of facts; no comments will be made.

The pre-war system

2. The Currency Act of 2471 (1928) provides that the unit of the currency is the baht, which is to find its physical embodiment in a silver coin or paper notes, both being legal tender without limit as to amount. In practice however no new baht coins had been issued for some years prior to the Act and practically all those already in circulation have now been withdrawn or melted down. No further notice of these coins need therefore be taken. The Currency Act Amendment Act of 2475 (1932) links the baht to sterling at the ratio of baht 11 to the pound. For the maintenance of this par value, the Act places the Treasury under the obligation to buy or sell sterling on demand; and, in practice, the Treasury freely purchased and sold sterling at the rates of baht 10.80 and baht 11.20 respectively.

3. In order to enable the Treasury to discharge its obligation, the law provides that there shall be a Currency Reserve to be held entirely apart from all other resources of the state. The legal components of this reserve are gold, sterling and U.S. dollars, including sterling and dollar securities. The proportion of each of these components is not provided by law; except that long-term securities are not to exceed baht 14 millions. The Reserve is secured by the provision that no payment shall be made from it, save against notes of an equivalent amount, the notes being simultaneously withdrawn from circulation.

4. For the security of the currency, the law provides that no notes shall be issued except against (1) notes previously issued, which shall thereupon be withdrawn from circulation ; (2) pound sterling; or (3) gold or gold exchange.

5. The system outlined above worked smoothly. At no time was there any difficulty in the maintenance of exchange stability. The baht was indeed one of the few free and stable currencies of the world. The currency position for the last month prior to the outbreak of war was of considerable strength.


30th NOVEMBER 2484 (1941)

  Baht   Baht
Note issue 275,331,688 Gold 123,110,485
    Sterling securities 41,065,225
    Sterling at call or 7 days’ notice 106,422,238
    Silver coins 1,169,825
  275,331,688   271,767,773

The gold was valued as follows : —

in oz. Fine Shilling Baht
1. 795,660.585 173.697 73,519,038
2. 257,142.449 168 23,759,962
3. 839.03 160.45 75,966
4. 266,533.9607328 173.697 29,462,970
5. 3,237.280 160.338 292,949
1,323,413.3047728   123,110,485

Sterling was booked at £ 1 = Baht 11

The system in force during the war

6. Four days after the commencement of the war, viz., on 12th December 2484 (1941), the Currency Emergency Act, B.E. 2484 was promulgated enabling the Finance Minister to issue Regulations modifying the Currency Acts with respect, inter alia, to the value of the baht in terms of foreign currencies, the legal components of the Currency Reserve and the issue of notes. This Emergency Act expires automatically upon the termination of the war. It may be observed, in this connection, that the legal position during the war is that the Currency Acts, outlined in paragraphs 2-4, remain in force, save where specifically modified by Regulations issued under the Emergency Act; and that these modifications cease to have any further effect upon the termination of the war, when the Currency Acts again come into full force.

7. The Emergency Regulations, issued from time to time, modify the Currency Acts in the following important respects, viz: —

(a) The provision whereby the Finance Minister is obliged to buy or sell sterling on demand is suspended.

(b) In April 2485 (1942) the baht was devalued by about 36% and its par value made equivalent to the yen.

(c) The yen and yen securities become another legal component of the Reserve and notes may be issued thereagainst.

(d) Notes may be issued against “Treasury Bonds” which are also made legal component of the Reserve. These Bonds are non-interest bearing bonds issued by the Finance Minister to the Currency Department.

8. About the end of 2485 (1942) the Bank of Thailand was established and the management of the note issue was entrusted to that institution. The principal provisions of the Bank Act relating to the note issue are as follows : —

(a) The Bank has the sole right to issue notes.

(b) Until such time as the international monetary system has become sufficiently clear and stable, the issue and management of notes by the Bank is to be governed by the existing currency laws.

(c) The Bank may, within the period fixed by the Minister, issue notes of the Government.

Consequently, the present position is that the Bank has replaced the Treasury as the Currency Authority. This is a permanent change in the currency system. The Bank issues and manages Government notes (no bank-notes have as yet been issued) subject to such provisions of the Currency Acts as have not been modified and the Currency Emergency Regulations.

9. Foreign exchange control was imposed early in the war. Yen proceeds of Thai exports including yen remitted from abroad are to be offered for sale to the Control; and yen required for any purpose must be purchased from the Control. The Controls buying and selling rates from and to authorized exchange banks are yen 100 = baht 99.25 and yen 100 = baht 100.75 respectively. The authorized banks rates via-a-vis their customers are baht 99 and baht 101 per yen 100. Control of exchange transactions was first exercised by a Bureau of the Treasury. Upon its establishment, the Bank of Thailand took over the task.

Use of bank credit and currency issues during the war

10. For the sake of clarity, description of the use of bank credit and currency issues will be given in two parts, viz., their use for (a) purposes of Government and (b) financing Japanese military expenditure in Thailand.

11. Government finance has since 2480 (1937) been characterized by substantial and increasing revenue deficits : —

Total deficit for pre-war period,
2480 - 2484 (1937-41) baht 89,265,091
Total deficit for war period,
(a) 2485-2487 (1942-44) baht 225,196,980

(b) 2488 (1945) Jan.- June (approx.)

baht 26,162,420
  baht 340,624,491

12. After the two funds held by the Treasury, viz., the Treasury reserve and the Debt Redemption Fund, had been exhausted, the deficits were met by the issue to the Currency Authority of Treasury Bonds (See paragraph 7). These bonds were issued whenever the Treasurys balance with the Bank of Thailand was inadequate to meet the needs of Government; and the Treasury account with the Bank was thereupon credited with the amount of the bonds. The Bank in its turn replenished its own cash balance by the transfer of the bonds from the Banking to the Issue Department against notes. In 2488 (1945) four-month Treasury Bills were also issued. These bills were taken up both by the Bank of Thailand and the commercial banks. The floating debt on June 30th 2488 (1945) was as follows : —

Treasury Bonds baht 202,500,000
Treasury Bills baht 10,000,000
  baht 212,500,000

13. In consequence of the Pact of Alliance, the Government agreed in principle to supply the Japanese Military Authorities with such amount of money as they might require for military expenditure in Thailand. The actual sum to be supplied was determined for each half- yearly period by agreement between the two Governments; the Bank was credited from time to time with yen at the Bank of Japan, and the equivalent amount in baht was thereupon credited to the Yokohama Specie Banks account with the Bank. As the yen was a legal component of the Currency Reserve, the Bank, in order to replenish its cash balance, transferred yen from time to time from the Banking to the Issue Department against notes.

14. The total amount of credit given to the Japanese military authorities from December 2484 (1941) to June 2488 (1945) was baht 1,230,701,083. A percentage of the yen credit received was allowed by the Japanese Government to be used in the purchase of gold bars from the Bank of Japan. The position up to June 2488 (1945) was consequently as follows : —

December 2484 (1941) - June 2488 (1945)

Baht credits given to the Japanese Military Authorities Yen credit received (less amount spent on purchase of gold) Gold purchased
Quantity Value
Baht Yen Gr. Fine Yen
1,230,701,083 1,106,699,988 29,838,433.8 124,001,095

15. Forced expansion of bank credit for Government and Japanese military purposes involved, as already mentioned, expansion of the note issue. Before examining the note position, however, it must be observed that the rate of exchange between the baht and the yen was another factor that contributed towards currency expansion. As already stated, the Government was obliged by agreement with Japan early in 2485 to devalue the baht by about 36% and to maintain its value on a par with the yen. Maintenance of this par value resulted in a disequilibrium in the balance of payments, the demand for baht substantially exceeding the supply. The agreement prevented elimination of this disequilibrium by the normal method of raising the par value of the baht; and because of another agreement, exchange control met with only a small degree of success in its attempt to correct the disequilibrium. The excess demand for baht had to be met by the issue of notes.

Balance of Payments

2487 (1944)

Inward or credit movement Outward or debit movement
baht baht
1. Merchandize, government and business remittances, etc. 136,497,521 Merchandize, government and business remittances, etc. 63,580,106
2. Remittances for Japanese Military Expenditure 514,000,000    
  650,497,521   63,580,106

Balance of Payments (approx.)

Jan. - June 2488 (1945)

Inward or credit movement Outward or debit movement
baht baht
1. Merchandize, government and business remittances, etc. 46,580,767 Merchandize, government and business remittances, etc. 12,373,037
2. Remittances for Japanese Military Expenditure 470,000,000    
  516,580,767   12,373,037

16. It will now be cleared that expansion of the currency issue was due to three factors; (1) the excess of Government expenditure over revenue; (2) Japanese military expenditure; and (3) the agreements with Japan which prevented equilibrium of the balance of payments. The extent of this expansion is illustrated by the following Table which should be compared with that in paragraph 5.

Currency Position

30th June 2488 (1945)

  Baht   Baht percentage of issue
Note issue 1,451,960,348 Gold,    
    in Thailand 144,901,516 9.98
    in Japan 194,057,577 13.37
    Yen exchange 793,739,988 54.67
    Treasury Bonds 202,500,000 13.95
      1,335,199,081 91.97
    Gold in U.S.A. 38,390,545 2.64
    Sterling & Sterling securities 265,753,896 18.30
  1,451,960,348   1,639,343,522 112.91

17. The gold holding of the Bank of Thailand (Issue Department), shown above, comprised : —

(a) Held in Thailand and Japan

60,199,808.459 gr. fine @ baht 4.80

8,650,521.000 gr. fine @ baht 5.78

68,850,329.459 gr. fine

(b) Held in U.S.A.

7,998,030.162 gr. fine @ baht 4.80

76,848,359.621 gr. fine

Sterling was valued at 13.923 d. per baht, or baht 17.24 = £ 1.

Bank of Thailand,

21st July 2488.


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