Demand for Money and Other Liquid Assets in Thailand, 1946-1967

Abstract

The process of monetization and financial development has proceeded rapidly in Thailand in the period since World War II. The public's holdings of liquid financial assets rose more than tenfold between 1947 and 1967. In the process, the ratio of liquid assets to GNP rose from about one-sixth to about one-third. Growth was accompanied by important changes in asset composition. Deposits with commercial banks gained in proportional importance relative to liabilities of the central bank, and interest-bearing assets generally gained at the expense of currency and demand deposits. This paper surveys the facts of Thai financial development. Analysis of the data indicates that there have existed relatively stable demand functions by the public for financial assets, particularly in relation to real nonagricultural income. These functions have been subject to periodic shifts, but those can generally be explained by developments relating to interest rates and other characteristics of financial assets, branch banking, and the availability of nonmonetary gold. An important general conclusion is that, in an atmosphere of relatively stable prices and stable government, the income elasticity of the public's demand for liquid financial assets has been substantially higher than unity. Further, since 1955 the gross marginal propensity to hold liquid financial assets has averaged about two-fifths relative to GNP in current prices. This condition has contributed importantly to the institutionalization of saving and investment. The demand for government securities, by the public and the banking system combined, has displayed a particularly high income elasticity. Consequently, the