Myanmar kyat drops further after election

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Flying kyat bundleHopes that the Myanmar elections would prompt the country’s currency to stabilise haven proven false. Although the kyat gradually strengthened for several weeks ahead of the November 8 polls, it began to weaken against the US dollar again shortly before.

As of November 12, it stood close to 1,290 to the USD, far from the rate the central bank set in April 2012 for a managed float closely around 818 kyat per dollar. At that time, this was close to the black market rate. Prior to the managed float, the kyat had a completely unrealistic rate of 6.4 to the USD. These days, money changers in Yangon were partly offering or more than 1,300 kyat for one greenback.

However, the domestic situation in Myanmar can only partly be blamed for the kyat’s weakness.

According to central bank official Soe Thein, 75 per cent of the kyat’s recent depreciation is a result of US dollar strength, and just 25 per cent is linked to domestic affairs including the election.

The kyat has weakened by around 25 per cent against the USD this year alone and is likely to continue to fall in the longer term, due to Myanmar’s growing trade and budget deficit and the expectation of rising US rates.

The Myanmar government has been trying to curb the use of the USD in the country to stabilise the tumbling kyat and to avoid a “dollarisation” of the economy like what happened in Cambodia. The central bank revoked foreign exchange licenses from businesses ranging from hotels and restaurants to golf clubs and hospitals despite the USD being in broad use in the tourism industry.

The licenses, however, allowed many people to use the USD for domestic transactions, bypassing the local financial system and creating a black market for the US currency.

According to the new rule, only banks and official money changers will still be allowed to exchange USD. Other companies will have to return their permits by November 30. All hotels, travel agencies, restaurants, duty free shops, airlines, hospitals, freight forwarders, telecom enterprises, media, apartments, super markets, souvenir shops, golf clubs and the military-owned Myanmar Economic Holding will have to give back their licenses.

The central bank said the move was intended to promote the use of kyat in making payments for goods and services within the country and to cut down the use of cash by encouraging domestic debit cards and credit cards, internal payment cards and online payment system.

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Reading Time: 2 minutes

Hopes that the Myanmar elections would prompt the country’s currency to stabilise haven proven false. Although the kyat gradually strengthened for several weeks ahead of the November 8 polls, it began to weaken against the US dollar again shortly before.

Reading Time: 2 minutes

Flying kyat bundleHopes that the Myanmar elections would prompt the country’s currency to stabilise haven proven false. Although the kyat gradually strengthened for several weeks ahead of the November 8 polls, it began to weaken against the US dollar again shortly before.

As of November 12, it stood close to 1,290 to the USD, far from the rate the central bank set in April 2012 for a managed float closely around 818 kyat per dollar. At that time, this was close to the black market rate. Prior to the managed float, the kyat had a completely unrealistic rate of 6.4 to the USD. These days, money changers in Yangon were partly offering or more than 1,300 kyat for one greenback.

However, the domestic situation in Myanmar can only partly be blamed for the kyat’s weakness.

According to central bank official Soe Thein, 75 per cent of the kyat’s recent depreciation is a result of US dollar strength, and just 25 per cent is linked to domestic affairs including the election.

The kyat has weakened by around 25 per cent against the USD this year alone and is likely to continue to fall in the longer term, due to Myanmar’s growing trade and budget deficit and the expectation of rising US rates.

The Myanmar government has been trying to curb the use of the USD in the country to stabilise the tumbling kyat and to avoid a “dollarisation” of the economy like what happened in Cambodia. The central bank revoked foreign exchange licenses from businesses ranging from hotels and restaurants to golf clubs and hospitals despite the USD being in broad use in the tourism industry.

The licenses, however, allowed many people to use the USD for domestic transactions, bypassing the local financial system and creating a black market for the US currency.

According to the new rule, only banks and official money changers will still be allowed to exchange USD. Other companies will have to return their permits by November 30. All hotels, travel agencies, restaurants, duty free shops, airlines, hospitals, freight forwarders, telecom enterprises, media, apartments, super markets, souvenir shops, golf clubs and the military-owned Myanmar Economic Holding will have to give back their licenses.

The central bank said the move was intended to promote the use of kyat in making payments for goods and services within the country and to cut down the use of cash by encouraging domestic debit cards and credit cards, internal payment cards and online payment system.

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