The Central Bank of Myanmar is stepping up its efforts to discourage the domestic use of US dollar, with the plan to illegalise dollar-denominated transactions.
According to Win Thaw, deputy director-general with the foreign currency management department of the CBM, the directive demanding all local transactions completed in Myanmar kyat would be issued by the end of this year.
“The central bank has ordered ministries to make all payments in Myanmar kyat. There will be follow-ups to this directive. Other countries use their local currencies for local transactions. By this, we can reduce the use of dollars when the local currency depreciates against the dollar,” Win Thaw said.
Some hotels, restaurants and international schools are reportedly charging in US dollar. This drives up demand for the currency and hence puts Myanmar kyat under presssure. Though the greenback has appreciated against other currencies in the past months, the kyat has weakened at a much faster pace.
At the official exchange rate of 1,284 per dollar as of August 25, the kyat has depreciated by 25.3 per cent against the greenback so far this year. The weakening kyat puts pressure on Myanmar inflation, which picked up to 8 per cent in May 2015.
According to Win Thaw, once the directive takes effect, the central bank will take legal actions against violators. The offences and penalties are being discussed.
In Malaysia, Bank Negara slaps a fine of US$15,000 and a one-year prison term on those who make transactions in other currencies instead of Malaysian ringgit.
Myanmar adopted the currency managed float system on April 2, 2012. The dollar/kyat exchange rate was first set at Ks815 per dollar. From that day, the kyat has depreciated by 57.55 per cent.
The kyat has weakened mainly due to the huge current account deficit, as Myanmar relies heavily on imports while foreign direct investment somewhat slows down. According to the International Monetary Fund, the current account deficit widened further to about 6 per cent of gross domestic product in the 2014-15 fiscal year, ending March 2015.
Economists have also attributed the weak kyat to other factors like lack of actions taken against currency manipulators, hoarding of dollar among currency traders and rumours of the possible closure of banks.
Source: Eleven Myanmar