Central Bank Bullish Over Efforts to Boost Local Currency

By Kyaw Hsu Mon 21 October 2015

RANGOON — Burma’s central bank has defended its decision to revoke foreign exchange licenses last week, reiterating its determination to control “dollarization” and strengthen the country’s struggling currency.

Win Thaw, deputy director general of the Central Bank of Myanmar (CBM), told media this week that the bank stuck by its decision, despite concern from local businesses.

The CBM issued a directive to businesses dated Oct. 13 announcing the revocation of foreign exchange licenses that had permitted holders to accept transactions in US dollars.

License holders include a broad sweep of businesses, including hotels, travel agencies, airlines, hospitals, restaurants and supermarkets.

Sett Aung, CBM’s deputy governor, said the bank had begun accepting returned licenses as of Oct. 19.

The policy shift is expected to impact hundreds of businesses, with some concerned over their capacity to promptly comply.

Sources in the banking sector said the CBM had discussed with bankers the potential market impacts of the new directive.

“I think the government will listen to voices in the field, including from bankers here,” said Nyo Myint, senior managing director of the KBZ Group of Companies.

The kyat has been in steady decline against the dollar since at least the beginning of the year, with observers citing a shortage of US dollars and a burgeoning trade deficit as key drivers.

The current official exchange rate is 1,281 kyat—a similar value obtainable on the black market at present—compared to a figure at 1,025 kyat as of January 1, 2015.

“This policy is good,” Nyo Myint said. “But what we have to consider is, after foreign exchange licenses have been revoked, and if there is a shortage of dollars in the market, the exchange rate will shift again.”

Win Aung, chairman of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), told the state-run Myanmar Alin on Wednesday that the license annulment would “reduce demand for the dollar.”

“While some [businesses] have welcomed the instructions of the central bank, some are criticizing it as they have paid or received [transactions] in dollars in advance,” he said.

“[However], if we use our local currency in our country, it will reduce demand for the dollar and therefore I think it is a good directive. But businesses may face many difficulties in the transition period.”

Zaw Lin Htut, CEO of the Myanmar Payment Union, echoed Win Aung’s assessment that, following potential short-term pain, the policy shift would bring Burma’s economy into line with more standard international practices.

“These licenses were issued since 1988 when the dollar was not legal here and there were no exchange counters,” Zaw Lin Htut said, referring to a period when it was illegal for Burmese to carry foreign currency.

Since 2011, Burmese nationals have been permitted to hold up to US$10,000.

“Foreigners will also use Myanmar kyat by card or cash now, so use of kyat will increase, as it should in our country,” Zaw Lin Htut said.

Sean Turnell of Macquarie University in Sydney, an expert on Burma’s economy, highlighted uncertain aspects of the new policy in a Facebook post this week.

“It seems clear, for instance, that $US and other forex cash payments are ruled out at hotels, shops, and on buses, planes, etc. But can international credit cards be used?,” he wrote.

“[I]t seems… that in order to pay, say, a hotel bill hitherto levied in $US, a tourist will have to go to a bank and draw down kyat cash to settle their bill.”