Thursday, July 27, 2017

Central Bank moves to limit US dollars

The Central Bank of Myanmar has moved to prevent dollarisation by limiting US dollar withdrawals and reinforcing rules against paying in a currency other than the kyat.

The May 29 announcements by the Central Bank are aimed at preventing more widespread use of the US dollar, against a backdrop of a depreciating kyat.

It has placed a limit on dollar withdrawals, meaning no more than US$5000 may be withdrawn from a bank account on two occasions each week – though embassies, UN organisations and international NGOs are exempt.

“The limit is on the US dollar cash withdrawals only,” a senior Central Bank official said.

“There is no restriction on foreign currency payments for both domestic and international. There is no restriction on local currency payments. There is no restriction on foreign currency exchange.”

The Central Bank also issued a notice stating that transactions inside the country must be conducted in kyat, a rule that is already on the books but unevenly enforced.

The moves come as the kyat has tumbled about 6 percent against the dollar so far this year, according to the Central Bank’s official reference rate, but closer to 11pc if market rates are used. On May 29 the Central Bank’s rate was K1090 a dollar, while the market’s rate was closer to K1135.

Myanmar Oriental Bank chair U Mya Than said the decision to limit withdrawals to $10,000 a week from domestic bank branches followed a high-ranking meeting in Nay Pyi Taw in May.

The move came in response to concerns on dollarisation, or the increased use of the dollar instead of the local currency. Other ASEAN countries, such as Cambodia, predominantly use the dollar rather than the local currency, resulting in less control over its own monetary policy.

U Mya Than said there are also practical difficulties in Myanmar, as local banks often do not have enough dollars on hand to meet demand. This creates problems when people are not able to withdraw any money from their US dollar accounts.

“We do not print US dollars here,” he said.

Adding to the complications, most US dollar inflows come in forms of electronic payments through methods such as SWIFT transfers, though when people withdrawal money in Myanmar they want cash, rather than electronic currency.

“We need to prevent dollarisation,” said U Mya Than.

Turning to the restrictions on dollars is a way of promoting local currency use inside the country.