Thursday, August 17, 2017

Hundreds of forex licences revoked

The Central Bank of Myanmar (CBM) has revoked foreign exchange licences held by hotels, airlines and thousands of other businesses, in a bid to counter dollarisation.

Foreign exchange licences held by businesses including airlines, hotels and shops have been recalled by the Central Bank of Myanmar. Photo: Aung Htay Hlaing / The Myanmar TimesForeign exchange licences held by businesses including airlines, hotels and shops have been recalled by the Central Bank of Myanmar. Photo: Aung Htay Hlaing / The Myanmar Times

The new policy is effective from today. Companies must return their licences to the Foreign Exchange Management Department (FEMD) by November 30, a Central Bank official told The Myanmar Times.

Banks and money changers can still exchange foreign currencies, but others such as communication services, airlines, tour companies, hotels, hospitals, freight forwarders, supermarkets, duty-free and souvenir shops must give up their licences, said the official.

The military-owned Union of Myanmar Economic Holdings will also have to return its licence, he said.

An announcement published on the CBM website on October 16 confirmed the decision.

The Central Bank official said he hopes the new policy will encourage more card payments, particularly in the tourism industry. Point-of-sale systems are gaining traction but are still not widely used.

Non-banking businesses have been allowed to deal in foreign exchange since the Foreign Exchange Management Law was enacted in 2012.

However, now that people have sufficient access to US dollars and other foreign currencies through bank and non-bank money changers, this is no longer necessary, said the Central Bank official.

“It is illegal to trade foreign currency without a licence, but we also allow individuals to carry up to US$10,000. This has led to some confusion – our new policy will make things clearer,” he said.

The Foreign Exchange Management Law was updated in May 2015. According to Section 38, it is illegal to trade in foreign currency without a licence. Lawbreakers face up to three years in prison or a fine, or both.

Foreign exchange licence holders including banks and money changers can hold no more than $50,000 in cash at any time, he said, adding that every five years they must renew their licences at a cost of K100,000.

U Win Thaw, deputy director general at the FEMD, said he will try to ensure banks are able to supply sufficient foreign exchange.

“This policy is aimed at lowering dollar demand and protecting commodity prices,” he said.

The surprise announcement will impact companies that accept US dollar payments, such as real estate and car rental businesses.

U Soe Tun, a rice exporter and managing director of Farmer Auto Showroom said that the change is unlikely to impact traders but will mark a big change for hotels, tour agencies and duty-free shops.

Other companies that depend on tourism such as airlines, restaurants, art galleries and jewellery shops are also likely to suffer, as they often allow foreign visitors to pay in US dollars.

The government targets 4.5 million tourists this year, rising to 7.5 million by 2020, though experts say many of these “tourists” are likely to be day trippers from China or Thailand.

A growing preference to pay for services and goods in US dollars is spurring demand for the greenback and reducing the importance of the kyat, leading to exchange rate instability, said the Central Bank announcement on October 16.

The kyat has depreciated by around 25 percent versus the US dollar this year to K1284 yesterday, according to the official rate. However, after depreciating quickly through June and July the rate has remained stable for the past month.

A number of factors have led to currency weakness, including a strengthening US dollar and Myanmar’s widening budget deficit.

While a weaker kyat allows exports to become more competitive, the CBM is working on a number of policy changes to reduce dollarisation and help stabilise the currency.

In May, the Central Bank issued two directives aimed at reducing the use of dollars.

The first urged government organisations to make payments only in kyat. A separate document limited US dollar withdrawals from domestic bank accounts to $10,000 per week.

However, an official from the FEMD previously told The Myanmar Times that the Central Bank would give some warning before restricting US dollar use in the private sector.

The government has permitted foreign exchange dealing in Myanmar since 2011, when six commercial banks opened money changers on Thein Phyu Road.

The following year, the Central Bank established a managed floating exchange rate, ending 35 years of a dual rate, where the official rate of K6 to the US dollar was over 100 times stronger than the black market rate.

The managed float has on the whole worked well, though earlier this year the official rate departed from the market rate by up to 15pc, as CBM officials tried to prevent the currency from weakening.

Speculation and US dollar hoarding led to a shortage of foreign currency until the CBM once again allowed its official rate to meet the market rate.

Since then the rate has remained relatively steady, though is expected to depreciate due to underlying fundamentals and the prospect of a rate hike in the US later this year.