My eyes fluttered to attention when I heard “We’re here to help you”. Something had gone horribly awry. At the time, our small group of American college students studying abroad had been embedded in an exchange with one of the many slum communities of the city of Khon Kaen in northeastern Thailand. In a good-willed effort to make our exchange with the slum community a reciprocal one, and driven by her own sense of compassion, a member of our contingency told our hosts that part of the reason we were there was to help them. Upon hearing her words, the atmosphere immediately transitioned from that of an educational conference between two parties seeking to understand one another to a melee-like plea for help. And not just any help. Financial help. The floodgates opened and all hope was lost.
Our community desperately needs funding for education. We get nothing from the government. Are you doing anything to help us?
Well, I’m sure there are American non-profit organizations who would be interested in helping you. We can look into it.
Only the wealthiest Thais could afford to study abroad. How much did it cost you to study abroad in Thailand?
Err, well, even we Americans had to take out loans and obtain scholarships to afford the trip here. Not all Americans are rich.
How much does your tuition cost?
(Eyes dart across the room at one another, no one willing to state a numerical value.)
We’re not sure. It depends. A lot of it is covered by scholarships.
(No one had the heart to tell them that one year’s worth of tuition was greater in value than all 150 of their community’s houses combined.)
Chances are if you are reading this right now (my beloved target audience), you are rich. And not just rich: you are unbelievably wealthy. Most of us hate characterizing our assets this way, let alone recognize it to begin with. I haven’t thought of myself as absurdly rich by any means of the imagination. With my father still unemployed as a result of a floundering economy and our family quickly eating away at what limited savings we had to begin with, sometimes it seems my family is surrendering everything we’ve attained just to get by. This is a common story in the United States. Yet on an international scale, all of us—you and I—are the cream of the crop. We are the elites who have enjoyed unprecedented wealth and opportunities while over one billion people live on less than a dollar a day. I do not mean to come off as holier-than-thou and provoke defensiveness. I’m not trying to spurn you or make you roll your eyes. I’m not even trying to repeat what you may perceive to be obvious. Hopefully we can both simply agree that, relative to others on a global scale, we have enjoyed far more privileges in our lives. With this in mind, bear with me for just one more moment. Please, get comfortable. Grab a soda if you’d like.
So where does this disparity in wealth come from? Is it merely because we have so much money and they have so little? Although Thais generally make much less income than Americans do in relation to currency values (the U.S. dollar versus the Thai baht), Thais generally pay for a much lower cost of living than those in the United States. It would initially appear that wealth is relative and that everything balances out; Americans abroad often enjoy citing (albeit usually in desperation) that our enormous costs back home justify our superior incomes. Yet there is a fundamental reason why so many Americans are able to study abroad and so few Thais can afford to do the same. There is a reason why my iPod alone is worth roughly a third of the yearly income of a scavenger at the Khon Kaen landfill (about 48 thousand baht). That reason lies with the exchange rate.
Do you know what determines the currency exchange rate between countries? If you fully understand the reasons behind the exchange rate, I truly envy you. I have studied some of the numerous determining factors behind exchange rates and in conclusion I have only been able to grasp just enough information so as to further infuriate Thais when I desperately try to explain it to them. While currency exchange rates should be determined (at least from a naïve ethical standpoint) by purchasing power alone—e.g. hypothetically, if you can purchase a sack of rice in the United States for 5 dollars and that same sack of rice in Thailand costs 50 baht, then 1 dollar should equal 10 baht—this obviously is not the reality. Essentially, one of the most important determining factors is the international market demand for a given currency. The more demand there is for a country’s goods and services, the greater demand there is for that country’s currency, hence the value of that particular currency rises relative to other currencies.
Total wealth also plays a significant role. To use a widely cited example, let’s imagine that 1 U.S. dollar is equal to 1 Thai baht. Now let's say that the Americans own $100 and the Thais own 100 baht. If America buys $5 worth of product from Thailand, America would have $95 and Thailand would have 105 baht. Suddenly Thailand becomes wealthier. In theory Thailand is approximately 10% wealthier now. (100/95x105=10.52%) So suddenly $1 would be worth around 1 baht and 10 sarang (there are 100 sarang in 1 baht). This is the principle of how trade surpluses and deficits along with total wealth help determine the exchange rate. There are several other factors—including interest rates, inflation, political conditions and market psychology—that all factor in as well (many governments intentionally undervalue their currency to promote greater spending by foreign investors and tourists who get more bang for their buck, as described shortly). The foreign exchange market, considering all of the above, then arbitrarily produces a number which dictates everything. It tells us that the current currency exchange rate hovers around 33 baht to the U.S. dollar. The foreign exchange market allows me to purchase bottled water for less than 22 cents a bottle. The foreign exchange market allows me to buy a full meal of fried rice with chicken for only 46 cents. It allows me to purchase a fine button-down shirt for 3 dollars and 10 cents. To see an American-produced movie in the theatre on opening day for $3.71. To be treated to an hour long full-body Thai massage by a professional licensed masseuse for $6.19. To obtain a 6-month gym membership to a state-of-the-art gym for $21.66. To be vaccinated for Japanese encephalitis for $74.09 (as compared to $450 at some health clinics in the United States). The list goes on and on.
Do the reasons above adequately explain why the currency exchange rate is tilted immensely in favor of American consumers versus Thai consumers? Absolutely. Does it make it fair? Not even close. While it is far easier to explain ‘the system’ on the macroeconomic scale, it is far more difficult to explain it to those who are forced to scavenge in a landfill for the valuable recyclables I just threw out. Yet I am almost tired of sugar coating the issue. I am tired of dancing around questions concerning how much my airplane ticket cost for fear they would convert the price into baht and marvel in shock at my wealth. The system is there and we all live under it: why be afraid to tell them the perverted truth? Why consciously keep others ignorant? Perhaps it is because in telling the truth we are contradicting our own personal modesty and our own embarrassment towards our undeserved privileged. It does not make it any easier to explain to a Thai living in the slums that although they have put in more work and endured more suffering and hardship into making a living than I will ever know, I will always be richer. I will always be fatter. I will always enjoy a higher standard of living filled with luxuries and opportunities that they will never even know existed. The exchange rate may be very well founded, but it is still a moral travesty. It is a travesty which maintains that despite your feats, triumphs and hardships, despite all your labor, hard work, civility and perseverance, your cumulative yearly income will be but a fraction of what I spend on luxuries. And for that reason you are worth less than my golden rings.
Alex Binder
University of Colorado at Boulder