Black market for currency exchange in the crosshairs

Experts say that distrust over formal currency exchange dating back to the previous military government and more recent problems with exchange rates has kept the black market alive – though authorities are claiming they are preparing to take action.

The government is planning a crackdown on those continuing to trade currencies without licences in an effort to strengthen the formal market, according to a Central Bank of Myanmar official.

The Central Bank as well as institutions such as the Ministry of Finance and the President’s Office are planning an imminent crackdown, he claimed.

“Developing a formal market is the main way to fight the black market,” the official said. The official also pledged that the Central Bank would continue its recent policy of allowing the market to set the exchange rate. For much of 2015 it had kept the kyat at an artificially strong exchange rate against the US dollar compared with the informal market, before changing course in June to allow the market to drive its official reference rate.

The kyat has also declined nearly 25 percent against the dollar this year, with the Central Bank pegging the rate at K1278 per dollar yesterday.

While currency speculation continues, it was a much larger problem two to three months ago when there was a large difference between the official and unofficial rates. Five businesspeople were seized by the Bureau of Special Investigations for suspicion of currency speculation in June, at the height of the problem, when the market rate was around K1300 a dollar and the Central Bank rate was around K1234.

Many exchanges temporarily shuttered in the wake of the arrests, though slowly reopened and largely returned to trading at the unofficial rate. However, on the weekend of June 13 and 14, the Central Bank significantly devalued the kyat, bringing it much closer to the market rate, eventually removing the need for two separate rates.

Still, authorities are wary of the potential of the black market.

Ministry of Commerce adviser U Maung Aung said there is a commodity price stability committee organised by the Central Bank, the Ministry of Commerce, the Ministry of Home Affairs and the Customs Department. The committee is working to collect pieces of information to attempt to track the black marketers’ actions to enable policy decision-makers to take action.

Dollar speculation and black market currency trading are hardly new trends to Myanmar. Before the kyat was floated in 2012, a fixed exchange rate kept the local currency at artificially strong levels, though the black market flourished during the 35-year-long fixed exchange rate regime.

The whole banking industry has suffered from a nightmare of the habits during the unified exchange rate, according to U Mya Than, chair of the Yangon Foreign Exchange Market Committee and also Myanmar Oriental Bank.

While the situation is now much-improved, the informal market still needs to be tackled, he said.

“We all need to overcome this obstacle. The Central Bank must handle this decisively.”

Source: Myanmar Times

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