1. "Fixed exchange rate" Why did the Thai baht depreciate?

The answer is simple, because the Thai government finally abandoned the fixed exchange rate system and announced the free floating of the Thai baht exchange rate. As a result, the Thai baht exchange rate has depreciated sharply. Why did Thai monetary authorities abandon the fixed exchange rate system? To put it simply: Generally speaking, prices are uncontrollable and will fluctuate with the market. Conversely, if we want to control the price, we must have some special restrictions. For example, in North Korea, ordinary people can't exchange dollars, and ordinary enterprises don't have much demand to exchange dollars, so a fixed exchange rate system can be implemented. However, at that time, Thailand's financial development "Great Leap Forward" and the liberalization of capital account restrictions provided an opportunity for international speculators to short the Thai baht. When a country announces a fixed exchange rate, it must be implemented. Whether people or speculators take Thai baht to the bank to exchange dollars, the bank must exchange it according to the quotation. Without quotation, there is no fixed exchange rate system. But what if the bank can't come up with dollars? You can change it with the central bank. The problem is that the central bank can't come up with dollars. Either implement capital controls and prohibit exchange, or we can only abandon the fixed exchange rate and let the local currency depreciate with the market. Thailand is the latter case. At that time, international speculators sold a lot of Thai baht, and the economic slowdown in Thailand also led to the withdrawal of many international capitals from Thailand, which led to the flood of Thai baht and the lack of US dollars in the market. After the Thai government put more than $654.38 billion into the market, it was unsustainable and had to give up the fixed exchange rate.

Second, why did hedge funds sell Thai baht and someone took over?

Or the great financial leap forward. There are market makers in the forward foreign exchange market. Therefore, no matter how long you short, there are market makers as opponents. Of course, market makers may also be blown up, but the resulting turmoil is even greater.

Third, why sell dollars and buy Thai baht?

I didn't see this paragraph from the data, but there are indeed many international capitals that bought Thai baht before shorting it sharply. The reason is that at the beginning of the Thai crisis, domestic interest rates rose, while the US dollar interest rate was low, so selling US dollars to buy Thai baht may be a risk-free arbitrage. In addition, buying Thai baht in advance is also to prepare for shorting Thai baht in the future. Because shorting in the futures market does not necessarily guarantee the devaluation of the Thai baht, with the Thai baht in hand, the Thai government's foreign exchange reserves can be impacted by exchanging dollars at a critical moment, thus striving for a favorable situation for shorting the Thai baht. Moreover, the spot purchase is 1: 1, while the foreign exchange futures are 1: 10 (leverage amplification), so although the direction is opposite, the short position is 9 times more, and the overall position is empty.