The kyat has slumped further against the US dollar after the junta-controlled Central Bank of Myanmar (CBM) announced it will no longer set rates on its online foreign exchange trading platform.
The online trading program was launched in June to facilitate interbank and customer dollar transactions.
The CBM insisted at the time that the program operated according to the market exchange rate, declaring that exchange rates quoted elsewhere, including online, were illegal. Meanwhile, it has set the reference exchange rate at 2,100 kyats per dollar.
This has led to three different exchange rates: the CBM’s reference rate, the rate on the online trading platform which has averaged 2,922 kyats per dollar, and the market rate which averages around 3,300 kyats per dollar.
On Thursday, the kyat depreciated to 3,560 per dollar after the CBM said it would no longer set the reference exchange rate. This represents a decline of 70 kyats or around 2% from the previous day’s rate of 3,490 kyats per dollar.
The CBM said that despite the introduction of a floating exchange rate, dollars purchased on the market must still be transferred in line with the procedures issued by the Foreign Exchange Supervisory Committee (FESC).
The FESC is tasked with approving the use of foreign currencies for crucial imports including fuel, medical supplies, cooking oil, fertilizer, pesticides and certain building materials. It is also responsible for approving foreign currency for loan repayments and service fees.
It is still mandatory for Myanmar exporters to convert their foreign currency income at the reference exchange rate of 2,100 kyats per dollar.
Previously, they were required to convert 50 percent of their foreign currency incomes at the official exchange rate, while exchanging the remainder at the forex platform rate of 2,922 kyats per dollar. The regime arrested business owners who failed to comply.
Wednesday’s CBM announcement said traders now only need to convert 35 percent of their foreign currency incomes at 2,100 kyats/dollar and can freely exchange the remaining 65 percent at market rates.
“Many business owners are now taking a wait-and-see attitude,” a Yangon money changer said on Thursday.
“The regime relaxed its grip because it failed to control the rates even after taking measures including arresting [those who allegedly manipulate forex rates]. The kyat has slumped because of panic in the market,” he added.
“We don’t know yet if the relaxation will work. The CBM and FESC are applying their own separate procedures, which is confusing business owners. We have to wait and see whether the kyat will decline further. If traders can’t import goods, we won’t get dollars, and trade will be slow in the forex market.”
Business owners and economists fear the CBM’s policy change may spark another rise in prices of basic goods.
“The regime controls foreign currency trading and imports of goods like cooking oil and fuel, so many people expect commodity prices to increase again,” said one business owner.
“Fuel importers now need to use US dollars at the market exchange rate when they make purchases. They barely make a profit at the market rate, so they either don’t pay or they stop selling. This is why the whole country is suffering from fuel shortages.”
Pumps began running dry on Monday with fuel delivery trucks trapped in long queues at Thilawa Port in Yangon. Some filling stations have closed even in major cities like Yangon and Mandalay.
Late last month, the Union of Myanmar Federation of Chambers of Commerce and Industry told factory owners in industrial zones to arrange their own fuel imports. The regime halted fuel supplies to industrial zones on Monday.
Myanmar plunged into a dollar crisis following the 2021 coup, as sanctions, withdrawal of foreign investment, declining exports, and now fighting in border trade zones take their toll.
