Central Bank Bites Down on Dollar Use, But Does it Have Teeth

The Central Bank of Myanmar (CBM) has recently issued a notice that requires businesses and government agencies to use Kyat for payments inside Myanmar, even for foreign investors.

This move is intended to raise the value of the Kyat by restricting foreign currency use for internal payments, according to a CBM official. The currency has undergone serious inflation in the past year.

U Ye Aung, director of the Central Bank’s Financial, Information, Inspection and Survey Department, said, “Other countries use their own currency in their country. We are trying to raise the value of our currency as much as we can.”

According to a client briefing by law firm VDB Loi, “The text is very general and not written in language used for legally binding rules. The Central Bank of Myanmar is in fact currently preparing detailed regulations which will be binding … Letter 904 (the statement in question) is just a heads up.”

This announcement comes just after another restriction on ATM withdrawals, limiting them to $5,000 two times per week, restricting the flow of currency into and out of the country.

Given recent changes in banking regulations, many businesses feel uncomfortable using the Kyat, increasing the demand for dollars. Daw Khaing Khaing Nwe, secretary of UMFCCI, said, “Local businesses usually use Myanmar currency for payments, but this is not applicable for large-scale commerce.”

Sean Turnell, associate professor of economics at Australia’s Macquaire University and an expert on Myanmar’s economy, disagreed that the Kyat should be pushed higher at all.

He told Myanmar Business Today, “I think the kyat should be lower – given that prices in Myanmar have risen relatively higher in Myanmar than in neighbouring countries, implying a real exchange rate appreciation.

“So, letting the kyat fall in nominal terms is partly just about maintaining its real value in any case. Of course, a lower value of the kyat makes Myanmar a much more attractive destination for investors, tourists, while also stimulating the country’s other exports.”

Myanmar has a unique relationship to foreign currencies being used in the country. With a lack of bank accounts in the country, dollars are often stored as a way of accumulating savings. In some border areas, the Chinese Yuan (RMB) is as prevalent as the Kyat.

U Hla Shein, chairman of Mon State Chambers of Commerce and Industry, said, “Changing of money is illegally done in border areas. The ideas and trust of people (in regards to the new policy) should be taken account as much as possible.”

It is still difficult for the Kyat to rise in value until demand increases. Local economists say that when Myanmar implements a stock exchange this year, there should be accompanying policies to strengthen the currency market and foster wider use of the Kyat.

Source: Myanmar Business Today

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