The Central Bank of Myanmar printed an additional 3 trillion kyats in a single week last month as the junta desperately attempted to contain an increasingly debilitating liquidity crunch at commercial banks, the civilian National Unity Government (NUG) and executives close to leading bankers said.
The central bank printed the banknotes and distributed them to private banks in the third week of July, NUG Minister for Planning, Finance and Investment U Tin Tun Naing said.
The amount is equivalent to about US$ 1.4 billion at the central bank’s official conversion rate of 2,100 kyats to the dollar and about $490 million at the market exchange rate.
U Tin Tun Naing and other economists warned, however, that the central bank’s attempt to contain a liquidity crisis by dramatically increasing the supply of money will cause the value of the local currency, the kyat, to continue its devastating plunge and further damage an economy already hammered by more than three years of severe economic mismanagement under military rule.
Within weeks of the junta ramping up the money supply, the kyat’s value quickly plummeted. On August 9, it fell to 6,000 to the US dollar, and on August 16 it breached the 7,000 mark.
The kyat was trading as low as 1,300 to the US dollar before the Feb.1, 2021 coup.
Residents of cities and rural areas across Myanmar were also hit by fuel shortages at the same time. As the value of the kyat plunged, prices of imported gasoline and diesel surged.
“These impacts are the result of the junta’s careless printing of banknotes since the coup,” U Tin Tun Naing said.
Two executives who are close to private bankers said the central bank pushed trillions of kyat into the banking sector to prevent it from collapsing.
Bank customers have faced restrictions and other difficulties withdrawing cash from banks since early July.
Trust in private banks fell after the regime announced at the beginning of the month that it was punishing major private banks for exceeding the central bank’s cap on home mortgages. Since then, customers have been lining up to withdraw their life savings.
Banks responded by lowering limits on daily withdrawals to between 1 and 2 million kyats.
In the second week of July, daily withdrawal limits fell to as little to only 500,000 kyats per day. They had been as high as 19 million kyats a day on normal savings accounts before the crunch.
Before printing an additional 3 trillion kyats, the junta held an emergency meeting with the country’s top bankers in Naypyitaw on July 10, where the senior junta officials berated them, and accused them of inflicting inflation on Myanmar and causing the kyat to plunge.
Following the 3 trillion kyat injection into the banking system last month, customers began to be able to withdraw more money from banks in late July and still can this month.
Residents of some wards in Yangon and some businesspeople say that the problem has been solved because they can still withdraw the amount of cash from banks that they usually did before the liquidity crunch.
“We are now able to withdraw the amount we want, but obviously, the quality of the banknotes is getting quite low. We can feel that the banknotes, especially the 5,000 and 10,000 banknotes, are much thinner than ever,” one businessman in Yangon explained.
A KBZ customer in Kyauktada Township who said she withdrew 2 million kyats from the bank in late July and a CB customer in Thingangyun Township who said he withdrew 20 million kyats from CB bank this week both said their banknotes were not only thinner but also smelled strongly of ink. This, they said, was evidence that they were printed recently.
The junta’s affection for printing plenty of cash is not new.
Both the National Unity Government and Australian economist Sean Turnell, who was jailed by the junta, previously revealed that the regime had printed about 30 trillion kyats in the three years since its coup.
The junta’s hyper-aggressive monetary expansion, they said, was a major reason for the kyat’s plunge.
Speaking to The Irrawaddy, Tin Tun Naing said the junta had to do this to raise the cash it needed to fund its war and administration, and that it will persist in expanding the supply of money to ensure its future.
“What we can say for sure now is that the amount of money that the junta has been printing since the coup has now already exceeded 30 trillion kyats. As a consequence, Myanmar’s kyat value will continue falling and we see no chance for the banks to recover,” he said.
In the two years before the coup, the government of the civilian National League for Democracy (NLD) injected a total of 3.656 trillion kyats into the economy to help ameliorate the challenges created by the pandemic.
In 39 months, the junta has printed more than eight times the amount of money that the NLD did in a pandemic-hit two-year period, the NUG said in a June press conference.
Economist Turnell, a former economic advisor to Daw Aung San Suu Kyi, told The Irrawaddy that flooding an economy with cash is a common response to severe financial crises, especially those that involve a collapse in institutional trust.
“This is precisely Myanmar’s situation now,” he said. “Nobody can reasonably trust the country’s banks, nor the regulatory authorities that are meant to keep depositor money safe.”
“This is yet another sign of the desperate economic plight the State Administrative Council [the junta’s governing body] has put Myanmar in. This is ‘war economy’ stuff, but on the losing side of that narrative,” he added.
