Myanmar’s regime again violated the military-drafted 2008 Constitution late last month and extended junta rule for six more months. The junta-controlled Central Bank of Myanmar also issued higher denomination 20,000-kyat notes, which led to general price increases and prompted the regime to form a national-level committee to “stabilize commodity prices”.
Professor Min Min Thaw, who is teaching economics at California State University, recently talked to The Irrawaddy about the economic situation in Myanmar.
The regime said the 20,000-kyat note would be issued in limited quantities to mark the completion of the giant Buddha statue in Naypyitaw and the birth of a so-called white elephant. The market responded with price hikes and the prices of staples like rice have increased. The regime said the higher denomination note will not cause inflation. But it has been forced to form a committee to stabilize commodity prices. What is your view?
Normally, countries issue higher denomination notes for four reasons. The first is hyperinflation. If inflation is so high there is a need to issue notes of higher denominations as existing notes become worthless.
Japan and Germany issued higher denomination notes during World War II. But it is not the case in Myanmar. Inflation is high since the 2021 coup, standing between 18 and 22 percent. But it is below hyperinflation [where prices increase by over 50 percent per month].
The second is about exchange rates. Higher denomination notes are also issued when the market exchange rates are over 10,000 times higher than central bank rates. It is again not the case in Myanmar. The market rate and official exchange rate fixed by the central bank are different but the gap is not 10,000 times higher. So this is again not the case.
The third is about counterfeit money. When there is a large number of counterfeit notes in circulation, the authorities demonetize them, issue banknotes of high denominations and allow people to exchange them at their full denominal value. Again this is not the case in Myanmar. Counterfeit money is in circulation in Myanmar and people are not having trouble because of it.
The fourth is a country badly needs money when it is at war. In the case of Myanmar, the regime gets money from its Myanmar Oil and Gas Enterprise. And it can also play on US dollars handled by the Myanmar Foreign Trade Bank and Myanmar International Commercial Trade Bank.
[The two banks handle dollar transactions made between state-owned enterprises and private businesses and overseas markets.]
The regime needs more US dollars after it was hit by sanctions. This is why it has issued higher denomination notes.
The regime is short of funds to pay government employees. As everyone is aware, Myanmar’s economy has been on the decline. Unemployment is high and there is no international investment or tourism. All these contribute to a budgetary crisis and hence the higher denomination note.
The regime cited the birth of a white elephant as a reason to issue the notes. [The generals] have performed yadaya since the 1962 coup. The regime needs money and perhaps the new note was also a yadaya. The regime was trying to kill two birds with one stone.
You said Myanmar is not yet experiencing hyperinflation but is it likely?
The growing trend is toward hyperinflation. Other countries follow International Monetary Fund rules when issuing higher denomination notes to prevent inflation. The value of a new denomination must be fixed and issued within a set timeframe, for example, one or three months.
The regime said the 20,000-kyat note would be issued in limited numbers through an exchange process and individuals can obtain a maximum of three by exchanging them with current notes. But it did not specify how much and for how long it would issue the new banknotes. If it issues unlimited amounts of notes for a long time, it can result in hyperinflation.
As it does not follow IMF rules and there is no fixed amount and timeframe, businesses and people have responded.
Since the 1962 coup, generals do as they please but the people have no trust in them. That’s why prices soared within 48 hours of the plan to release new notes being announced and the kyat slumped immediately.
What will be the impact of hyperinflation?
Myanmar’s economy will suffer badly. People, including those who have jobs, will go hungry. If inflation rises rapidly, rich people will get a lot richer. Rich people keep dollars, real estate and gold and their net wealth will not be greatly affected.
But middle- and low-income families with fewer assets will see inequality widen with hyperinflation. The World Bank report in 2021 in the aftermath of the coup highlighted a significant increase in numbers of people going hungry and living below the poverty line. The numbers increased in 2022.
There won’t be foreign investment. There has been no western investment since the 2021 coup. Some ASEAN countries invested in Myanmar last year but this will decline if there is high inflation. Living standards will decline a lot.
How do you assess the regime’s economic management?
For a country to develop, the first thing it needs is stability. The second is a stable exchange rate. Third, there must be infrastructure and fourth low-skilled labor and an educated community.
Educated young people refuse to live under military rule.
Their parents send them to foreign countries to do whatever they can as there are no jobs. Parents at least feel their children can be alive in foreign countries though they may die in Myanmar. This has resulted in a brain drain.
There won’t be stability as long as the generals remain in power.
The central bank chiefs are incapable. The people and the international community know that. As no one has trust in them, the exchange rate will never be stable.
Our country will not develop and create jobs for young people as long as the junta exists. Only when the military returns to barracks and capable people lead the country will international governments trust Myanmar.
Myanmar’s people and businesses have no trust in the regime. They say one thing and do another and ignore capable people. They never consult anyone. The 20,000-kyat note is a good example. They did it without consideration. People will be in trouble as long as the regime continues.
