Central Bank Revokes Forex Licenses to Control ‘Dollarization’

By Aung Hla Tun 18 October 2015

RANGOON — The Central Bank of Myanmar has revoked foreign exchange licenses issued to hundreds of businesses ranging from hotels to hospitals, in a bid to control “dollarization” and increase the value of the ailing kyat currency.

The Central Bank sent an official letter to the license holders last week, a copy of which was seen by Reuters, telling them to return their licenses between Oct. 19 and 30.

The licenses, which allowed businesses to access US dollars, encouraged people to use the historically more stable currency for domestic transactions more conveniently after bypassing the local financial system.

“[The cancellation] is intended to promote the use of kyat in making payments for goods and services within the country and to cut down the use of cash by encouraging domestic debit cards and credit cards, internal payment cards and on-line payment system,” the letter said.

A Central Bank official told Reuters the licenses had initially been issued to the businesses to help them carry out transactions conveniently.

“But it led speedily to dollarization, causing an unstable exchange rate and weakening the kyat in the local market. We’ve decided to revoke the licenses after consulting international experts, including those from the IMF [International Monetary Fund],” said the official, who declined to be named.

The kyat has fallen more than 20 percent so far this year, making it one of the worst-performing frontier market currencies in 2015.

According to the Central Bank letter, all hotels, travel agencies, restaurants, duty free shops, airlines, hospitals, freight forwarders, telecom enterprises, media, apartments, super markets, souvenir shops, gold clubs and the military-owned Union of Myanmar Economic Holdings Ltd will have to give back their licenses.

“In fact, it’s nothing strange. You have to make payments in local currency in every country,” said Than Lwin, a top official of KBZ Bank, Burma’s biggest private bank, and a retired vice governor of the Central Bank.

“Frankly, the Central Bank should have imposed this measure much earlier,” he told Reuters.

Economist Khin Maung Nyo said the revocation of licenses would take some time to have an impact on the local currency, but would likely spur demand for US dollars in the black market.