It is time! The second half started today. Zach left for the airport early in the morning. I woke up and said our goodbyes and wished each other well. Even though it was 7 am it still hit me, I alone now. I went to bed a little longer and then met up with my friend Jacob. Jacob and I had breakfast and I asked him about his takeaways from his Thailand trip. We also said our goodbyes before I took my van towards Khao Sok National Park. In the van to Khao Sok I researched many topics. Should I write about economics or physics today? Let's go with economics since I learned some interesting stuff. I chatted with a very smart man, well versed in the socioeconomics of Asia. I told him about how Bhutan is looking to revolutionize their economy and explore a digital revolution. He gave me pros and cons of Bhutan but ultimately said that "plans are good, but they are not the same as abilities" I have come across this idea many times on my journey. Investors want to see real data and ways to get their money back, not just pretty pictures and qualitative descriptions. The proof is in the numbers they say. Bhutan has a GDP per capita of 3000 USD, adjusted for purchasing parity it is 3-4 times bigger. Purchasing parity is an economic theory used to compare the relative value of currencies by exempting the cost of a standard basket of goods in different countries. It adjusts for price level differences, providing a more accurate measure of the economic productivity and living standards between nations. For example, if a basket of goods costs $100 in the US and 2,000 Ngultrum in Bhutan, the purchasing parity is 2000/100 = 20 BTN/USD. The purchasing power rate indicates how much of one currency are equivalent to the other in terms of purchasing power. Now, if the nominal exchange rate is 80 BTN per USD, but the PPP rate is 20 BTN/USD, it suggests that goods are relatively cheaper in Bhutan. The discrepancy indicates that the Bhutanese currency is undervalued, as it takes more BTN to purchase a US dollar on the foreign exchange market. When GDP per capita is higher when adjusted for purchasing power parity compared to nominal it suggests price levels are lower domestically. Also, Bhutan's GDP is heavily reliant on non-tradable sectors like tourism. Since there are not a lot of exports, Bhutan generates limited foreign currency, which keeps the nominal value of its currency low relative to major currencies. Finally Bhutan is now deeply integrated into global trade and financial systems which limits demand of the Ngultrum internally. Nominal value of the exchange rate reflects international perceptions of the economy, not the actual purchasing power in Bhutan. Overall the important takeaway is that purchasing power parity compared to (PPP) adjusts the raw economic numbers to reflect purchasing power, giving a clearer picture of economic well being. Also, I never thought about how doing more international business creates a demand for a country's currency, thus raising the nominal value. An example of an overvalued currency where the nominal exchange rate is higher than the PPP is the Swiss Franc. Another big takeaway from the conversation I had was the growth of Vietnam. I have heard backpackers say Vietnam is their favorite country for the culture and nature, but now I am hearing the economy is on a great trajectory. Even though the government calls themselves communist, there are plans in motion for it to become an international financial hub. if that is the case money will flock there, like in UAE and Singapore. Anyway I am here in Khoa Sok a national park north of Phuket. I will be doing a jungle safari and staying on a floating bungalow in an emerald lake tomorrow. I look forward to being back in nature and hopefully it is not too touristy. I came to Khoa Sok without booking an excursion but found one through my hostel. Hopefully it is good!
