Mixed Response After Central Bank Rescinds Foreign Exchange Licenses

By Kyaw Hsu Mon 19 October 2015

RANGOON — After the Central Bank of Myanmar (CBM) announced the revocation of foreign exchange licenses last week, questions remain over how the move will affect local businesses striving to accommodate a common preference for trade in US dollars.

In a letter dated Oct. 13 sent to businesses possessing a Foreign Exchange Acceptor & Holder License, the CBM said the permits would be cancelled in an effort to encourage use of the country’s struggling local currency.

The licenses had permitted businesses to carry out transactions in foreign currency.

In August, the Central Bank hinted at enacting measures to prohibit the use of dollar transactions for local services after franchises of the ice cream restaurant Swensen’s and Thailand’s The Pizza Company began pricing their menus in US dollars.

The Central Bank had previously halved US dollar withdrawal limits in May as concerns mounted over the months-long depreciation of the kyat.
The CBM’s latest letter instructed businesses, including hotels, travel agencies, restaurants, airlines, hospitals, supermarkets and the military-owned Union of Myanmar Economic Holdings Ltd, to hand back their licenses by November 30.

The directive, which contained no stipulation of punishment for businesses that failed to comply, is expected to impact hundreds of businesses, with some concerned over their capacity to promptly adjust.

“We’re selling our package tours to tourists in US dollars,” said Hnin Pwint Phyu, managing director of Nanmyint Maha Tours. “How will we sell them now? There should be a solution.”

Hnin Pwint Phyu’s concerns were echoed by a local airline official who queried the potential impact on airlines selling tickets in US dollars.

“We need better solutions now this policy has been announced,” said the representative, who wished to remain anonymous.

Sean Turnell, an economist at Macquarie University in Sydney, said the Central Bank’s move would arrest “above ground” dollar transactions but would likely only stimulate the trade on the black market.

“Ultimately, the demand for US dollars in Myanmar reflects the lack of trust in the kyat and the domestic financial system, so addressing this is what is needed in the long run,” Turnell said, adding that he had some sympathy for the CBM as no central bank wanted a foreign currency in wide local circulation.

“For one thing, it means domestic monetary policy is much less effective,” he said. “But, in the end, all of this highlights the need for further and deeper structural reform in Myanmar, which addresses the question of why domestic institutions are distrusted.”

Some industry sources however have welcomed the CBM’s attempt to control “dollarization” of the local market.

Dr Maung Maung Lay, vice chairman of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), said any country would adopt similar policies to boost its national currency.

“Look at Thailand, our neighbor, which only accepts Thai baht. We should be like that,” he said.