George Soros, the controversial billionaire and philanthropist, is blamed by market experts and economists for exacerbating the Asian financial crisis in 1997. As Soros finds himself at the center of yet another controversy for his remarks about Prime Minister Modi’s connections to industrialist Gautam Adani, is the Indian rupee under threat? Soros has made short bets on sovereign currencies in the past, and he has won.
George Soros’s Big Short on the Thai baht and Malaysian ringgit
The Asian Financial Crisis began a month after Thai authorities unpegged the baht from the dollar in August 1997. By encouraging Thai banks, financial institutions, and businesses to borrow dollars without hedges, sany hedges, domestic lending was heavily subsidized. Thailand, however, faced difficulties repaying its dollar debt obligations due to the dollar’s strength and falling trade. In light of this, the authorities decided to lift the baht-to-dollar peg. By October 1997, the baht had fallen 60% since the peg was lifted on 2 July 1997. A wave of destabilization spread across Asia, resulting in a devaluation of as much as 47% for other currencies.
George Soros purchased forward contracts that sought to exchange the baht for the dollar at a certain price. Soros effectively doubled his money when the baht devalued and lost over half its value, resulting in him buying a billion dollars worth of the devalued currency and selling it using his forward contracts. The same tactic was used with the Malaysian ringgit.
Indian rupee: The limitations and protection
The Indian rupee is not a fully convertible currency, unlike the baht and ringgit, which were forced to unpeg from the dollar. Up to a certain limit, rupees can be exchanged; however, beyond that, approval is required for larger amounts. In the past, it has been argued that fully convertible rupees would improve liquidity in financial markets, increase employment, and increase access to capital.