Myanmar Currency ExchangeCurrency Exchange Myanmar
Myanmar's currency markets to be reformed soon
Myanmar ended its decades-long de facto multi-exchange system in April 2012 with the abolition of Myanmar-Kyat's formal link to the IMF's Special Drawing Right (SDR) and switched to a managing floating-exchange system. This is remarkable, but only the first stage in an onerous path of currency markets reforms.
Myanmar's central bank now faces two interrelated challenges: the creation of institutional structures for a FOREX FORM and the transfer of informational marketing activity to the form. Prior to the removal of the exchange rates, the exchange rates were set at 8.5057 kyats per SDR without any adjustments since May 1977.
While the exchange remained at 5 or 6 kyats per US Dollars, unofficial interest rates fell sharply, sometimes even above 1300 kyats per US Dollars. This was the biggest in the whole wide range of differences between formal and non-formal tariffs. The heavily exaggerated government stock price, however, was only used for financial bookkeeping in the government finance area.
For example, the depreciation of the formal course was particularly important for the government sectors in order to clear up their fiscal situation, which is essential for better administration of PRF. The removal of the formal stake had little effect in the personal sphere, as it was not used there.
Basically, there was no obligation to return the proceeds of exports, and the bank did not buy or sale any currency with clients. Instead, domestic exports and imports trade currencies either bilateral or through non-trading intermediaries at free markets which formed the non-trading exchange rate. The lack of a format for currency translation led to the emergence of the demanding non-traditional currency exchange markets, where the two markets were effectively coordinated in terms of consumption and availability.
There was no margin between the sale and purchase prices for direct currency trading between export and import. There was a parallel development in the non-traditional currency exchange rate markets to the non-traditional money transmission system dogu. As part of the currency regime reforms, Myanmar's Federal Reserve has taken up the challenges of building institutional capacity for a formally competitive currencyarket.
November 2011 saw the Federal Reserve grant a dealer's license to retail banking and allow trading in a currency other than the euro. Under the auspices of the Federal Reserve, the currency exchange rate markets were set up in August 2013 to substitute the day-to-day currency auctions between the Federal Reserve and the authorized dealerships.
A new, official currency exchange regime, in which banking is to take the lead, would allow the Federal Reserve to pursue an exchange control strategy and build up global resources. However, despite the establishment of a official currency translation mechanism, the majority of FX trading in the retail industry takes place in the non-trading area.
There is fierce and fierce rivalry between them and the developing non-formal markets, which operate with a very low spread between the purchase and sale prices. Ownership of FX among import and export companies is still widespread and hinders the build-up of cross-border resources in the financial world. Simultaneously, the base interest rat of the Federal Reserve, the new market-based formal price set in the day-to-day currency auctions, usually follows the informational prices instead of managing them.
Moreover, inter-bank FX markets have been slow. Besides the predominance of non-formal markets, one of the main causes of this is that there is no way for a bank to reduce the processing risks in currency trading. In other words, at best, foreign currency deals are cash-based.
This difficulty is also evident in Myanmar's bad assessment of the treaty implementation index. Currency markets reforms now face the downfall of two centuries of regime in the jungle, during which the demanding informational markets developed without institutional form. Negotiations on exchange rate movements in the non-trading economy have remained largely intact.
Maintaining the necessary institutional arrangements for a formality of a currency exchange markets that can rival the demanding informational markets is far more complex than simply removing the outdated public link. This kind of challenges is omnipresent in Myanmar's wider macroeconomic reforms agenda. The work of the ECB has been outstanding so far, but there is still a long way to go before the currency markets are reformed.
Mr Koji Kubo est Senior Research Fellow am Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO), derzeit bei JETRO Bangkok.