Myanmar central bank allays currency fears

Myanmar central bank allays currency fears

A staff hands a stack of Myanmar Kyat to another at a bank in Yangon on Monday. (Reuters photo)
A staff hands a stack of Myanmar Kyat to another at a bank in Yangon on Monday. (Reuters photo)

Amid widespread anxiety over the impact of the Central Bank’s decision to revoke thousands of US dollar accepter and holder licences, a senior official has promised authorities have no plans to return to old ways.

For many years – until 2011, when six commercial banks opened money changers – no ordinary citizen of Myanmar was permitted to hold foreign currency.

Since then, as the country has opened up, licences have been awarded not just to banks and money changers, but to companies in many sectors including hotels, airlines and supermarkets.

However, after thousands of these licences were abruptly rescinded last week, rumours have been flying in tea shops, on social media and in local language news that non-bank money changers will also be forced to close and that people found holding US dollars will be prosecuted.

Win Thaw, deputy director general and head of the Foreign Exchange Management Department at the Central Bank of Myanmar (CBM), has sought to allay these fears, the Myanmar Times reported on Wednesday.

The central Bank has no plan to return to the government’s old policies, he told the Myanmar Times, adding that the purpose of the notice was to increase confidence in the kyat and to widen its use in the domestic economy.

“We have no intention of being retrogressive. We are trying to move toward international practices and liberalisation,” he said.

“The policy was not aimed at stemming exchange rate depreciation. We just want to make sure that the kyat plays a larger role in the domestic economy,” he said, adding that the move may indirectly result in a stronger kyat.

After weakening by around 25% this year versus the US dollar, for the first time in months the kyat has strengthened – from 1287 kyat to 1281 kyat – over the past 11 days, according to the central bank reference rate.

In the unofficial market too, the rate has strengthened versus the US dollar from 1288 kyat to 1275 kyat.

Most countries only allow the use of their own currency for domestic cash transactions, said Win Thaw. “In Thailand, for example, you can only use baht for local transactions. US dollars can be used overseas, or put into a bank account, or used for transfers,” he said.

The notification only relates to retail payments – not to individuals holding US dollars, he said.

Companies in sectors other than banking or money changing will have to give back their licences to the central bank by Nov 30.

An existing rule that anyone can hold up to US$10,000 in cash without a licence will not change, he said, adding that any more than this should be held in a bank account.

Furthermore, there has been no change in policy on the transfer of US dollars in business deals and remittances, he said.

However, businesses that display prices in US dollars must convert these to kyat and only accept payments in kyat.

The central bank is hoping the new rule will widen the use of point-of-sale card payment systems among tourism-related companies such as hotels, airlines, jewellery stores and art galleries, he added.

As in other countries, customers making a card payment can choose to pay for their items in their currency of choice – including US dollars, though international visitors cannot pay for transactions on a card in kyat, as international banks cannot settle in kyat offshore.

Businesses expected to return their licences include “hotels and tour companies, communication services, airlines, hospitals, freight forwards, duty free shops, companies [such as media, Myanmar Economic Holdings, beverages, pesticides, etc] and enterprises [such as souvenir shops, super market, golf clubs, etc],” according to an Oct 13 notice, published on the CBM website on Oct 16.

The notice stated that policy on authorised dealer license of banks and money changer license has not changed.

Since June, the central bank has been warning ministries, region and state governments, and private organisations about the effects of dollarisation.

Yangon Foreign Exchange Market Development Committee’s chair Mya Than said that the new rules will not have a major impact on any of the industries that have found themselves without US dollar licences – even tourism – and said that this decision brings Myanmar in line with many other countries.

However, he added that the committee has suggested the central bank should give businesses a chance to adjust, as accepting US dollars has become a deep-rooted habit.

Before the central bank adopted a managed floating exchange rate in 2012, the official rate of 6 kyat to the dollar and the unofficial rate of 1200 kyat differed by 200 times, he said. Since then, the central bank has been taking steps toward normalising currency regulations, he said.

“The habit of hoarding US dollars will ease if it’s no longer a necessity,” he said.

Maung Aung, adviser to the Commerce Ministry, also welcomed the move, linking dollarisation to Myanmar’s growing tourism industry. “It’s important – a country should not use multiple currencies,” he said.

However, Sean Turnell, an expert on Myanmar’s economy and associate professor at Macquarie University in Australia, said the suddenness of the announcement and decision to implement the rule with immediate effect “is as inexplicable as it is counterproductive”.

In a note on Facebook, he wrote, “What is surely most important, and revealing, is the way the decision was made, announced, explained, implemented. Arbitrary, erratic, sudden, seemingly with little thought of consequences. A policy, in short, of the Myanmar of old.”

“Or maybe … of the Myanmar of the present? The Myanmar that, in fact, is not so new at all.”

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