After five decades of instability, the exchange rate between the kyat and foreign currency has stabilised over the year since the Myanmar Central Bank implemented a managed float in April 2012, the bank and local economists said.
The past 50 years have been marked by discrepant exchange rates in the trade and investment sector, on duty and tax charges and between official and black market money changers.
But the MCB, in a bid to stabilise the fluctuating kyat, put a managed float on currency on April 1, 2012. It also allowed Myanmar nationals to legally hold USD in August 2012.
Under Myanmar’s managed float, banks and official money changers are allowed by the MCB to set their exchange rate within 0.8 percent of the daily auction rate. It became compulsory for Myanmar’s entire financial sector to adopt the managed float, MCB’s deputy director general U Win Thaw told The Myanmar Times on March 19.
“The Central Bank wanted to emphasise the development of foreign exchange and stabilise the exchange rate. Over the course of the year, it has stabilised and it is appropriate for both import and export,” he said.
Prior to April 2012, the MCB allowed six private banks to open official exchange counters on Theinbyu Road in Yangon in October 2011. The money changers eventually expanded to airports, hotels, shopping centres and to a network of 18 privately operated banks.
The MCB, in a bid to expand their monetary market, next allowed companies to open official money changers if the companies could prove K30 million (about US$34,000) in capital and a proven history of accordance to foreign exchange rules and regulations.
When official money changers opened in December 2012, both the official and the black market rate stood at K860. On March 12, there was a temporary discrepancy between the official market rate and the black market rate of K20; on March 18, the rate again stabilised and now stands at K880 for official money changers, while the black market rate stands at K885.
“The Central Bank has received some serious criticism while trying to stabilise the monetary market. Some people have criticised the Central Bank for being very reluctant to change, while others don’t want to agree on a daily exchange rate,” said U Win Thaw.
“This is a very new practice for us. We’re keeping an eye on the economic situation of the country, and we also are looking at regional banking systems.”
Tourists are also affecting the stabilising exhange rate.
U Win Thaw said that the new influx of foreign tourists to Myanmar will continue to depreciate the kyat.
Consultant and senior economist for the Ministry of Commerce, Dr Maung Aung, said the kyat has depreciated from K850 to K880 a dollar since the MCB implemented a managed float.
“The exchange rate is more stable than in previous years, so traders can do their work with confidence. But I hope that the kyat will depreciate to K900 to benefit the agriculture and fishery industries,” he said on March 19.
The vice president of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), Dr Maung Maung Lay, said the managed float suits domestic traders and foreign investors.
“The former rate of K6 a dollar did not work, because investors expect an exchange rate that reflects the actual market when they invest their capital. Now they do not have to worry with K880 as the official exchange rate,” he said on March 19.
Before the MCB attempted to stabilise the exchange rate with a managed float, foreign investors could only receive K6 a dollar.