Rangoon — Burma’s currency is continuing its downslide and has dropped almost 18 percent in value since the government floated the kyat in early April last year. Currency speculation and falling global gold prices are contributing to the slump of the kyat, local bankers and traders said.
On Friday, the Central Bank’s official exchange rate stood at 969 kyat per US dollar, while some of Rangoon’s money changers reported that the currency had already fallen to more than 1,000 kyat per dollar.
The currency has dropped 17.8 percent compared to 818 kyat per dollar on April 2, 2012, when President Thein Sein’s reformist government floated the currency.
Since its float, the kyat experienced a gradual decline to 890 kyat per dollar until May 8, 2013, when it suddenly fell to 946 kyat per dollar in just one day.
Before April 2012, Burma’s military government set the official exchange rate at 6.4 kyat per dollar, even though the black market rate stood at around 820 kyat per dollar.
Rangoon money changers said the currency was also subject to strong daily fluctuations.
“This morning when I just started exchanging, a US dollar cost 998 kyat only. Now, in the evening, the price for a dollar has gone up to 1005 kyat. The price of a US dollar jumped like this, just today,” an informal money changer said on Wednesday.
Naw Eh Phaw, deputy-director-general foreign currency management at the Central Bank, told The Irrawaddy that a strong US dollar was hindering the bank’s policy of trying to limit fluctuations in the currency’s value.
“Now, our currency exchange rate has been destabilized,” he said, adding, “I can’t disclose how we will manage it.”
Burma’s Central Bank is still under authority of the Ministry of Finance, but Parliament is expected to soon pass a law that will turn it into an institution that can set independent monetary policy.
The International Monetary Fund said in a May 22 statement that the Central Bank was limiting exchange rate fluctuations without setting a specific target rate.
Than Lwin, deputy-chairman of Kanbawza Bank, said there were multiple reasons for the kyat’s slump, including a strong demand for US dollars among Burmese traders.
“There are many reasons for the rise of the dollar’s value [in Burma]. The reasons could be manipulation of the dollar’s price. The buying and hoarding of dollars, as its price is likely to continue to rise. I also suspect that gem traders buy dollars,” he said.
Gold traders are among those rushing to buy dollars, as global gold prices have fallen to their lowest point in many years.
“As the world gold prices slump, Burma’s gold prices also slump. So, gold traders here seek to buy US dollars,” said a Rangoon gold trader, who is a member of the Myanmar Gold Entrepreneurs Association.
The slump of the kyat has coincided with an increase in imports, driven in part by a construction boom in Rangoon and a sharp rise in car sales in Burma in the past year.
Some international economists have said that the kyat was overvalued when it was floated last year and needs to fall in order to strengthen Burma’s exports.
The President Office’s Minister Soe Thein has said on several occasions that the government would prefer a lower-valued kyat as it could attract foreign investment and boost export, as Burmese products become cheaper for overseas buyers.
Win Aung, chairman of the Union of Myanmar Federation of Chambers of Commerce and Industry, warned in late May however, that the kyat’s sudden drop was hampering Burmese companies’ foreign trade activities.
Dr. Maung Maung Soe, a retired economics professor of Rangoon University of Distance Education, said the falling kyat could attract foreign investment and boost export sectors, such as agriculture and garments, but he added that this had yet to happen.
“Although the US dollar price is up, in reality this has not led to an increase in exports. [And] there is not as much foreign investment as expected,” he said, adding that the slump of the kyat has so far only led to a rise in the price of imported goods, such as fuel, which has contributeds to inflation.
