Myanmar struggles to control tumbling currency

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kyat-dollarMyanmar’s central bank has increasing difficulties to prevent the depreciation of the country’s currency, the kyat, which has reached new record lows these days.

The kyat has been in decline since the country moved away from an artificially set exchange rate of six kyat for one US dollar in 2012. On April 1, 2012, the government of Myanmar began allowing for a managed float of the kyat and legalised the use and exchange of foreign currencies in Myanmar to better reflect global exchange rates, attract investment, and to weaken the black markets.

The new exchange rate was initially set at 818 kyat to the US dollar and daily rates were to be determined in a managed band at daily bank auctions. At the same time, official sales of US dollars by banks were limited to keep the rate relatively steady.

However, the opposite happened. While businesses – including state-owned enterprises involved in export-import businesses – complained that the banks did not sell enough dollars to them, they had to find other ways of getting get hold of the greenback, catapulting the black market rate up in the process. With it, for the official rate was nothing left to go up too in order to prevent the black market rate from ballooning.

As a result, one US dollar currently exchanges for almost 1,300 kyat, a new all-time high. The currency depreciated against the US dollar by ten per cent since this July alone, after it strengthened slightly for some time following Myanmar’s general elections in March 2016.

The Central Bank of Myanmar has now set up a committee tasked with reining in the depreciation. The committee is meant to  work with government ministries, such as the Ministry of Construction and the Ministry of Industry, which supervise sectors heavily reliant on foreign exchange, are actively involved in import-export operations or help set trade policies, 

Economist say that this will be a hard undertaking as there was a need for more foreign currency supply to enter Myanmar amid rising inflation and fiscal deficits. Myanmar remains heavily reliant on imports across a host of sectors, which is unlikely to change in the next few years.

 

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Reading Time: 2 minutes

Myanmar’s central bank has increasing difficulties to prevent the depreciation of the country’s currency, the kyat, which has reached new record lows these days.

Reading Time: 2 minutes

kyat-dollarMyanmar’s central bank has increasing difficulties to prevent the depreciation of the country’s currency, the kyat, which has reached new record lows these days.

The kyat has been in decline since the country moved away from an artificially set exchange rate of six kyat for one US dollar in 2012. On April 1, 2012, the government of Myanmar began allowing for a managed float of the kyat and legalised the use and exchange of foreign currencies in Myanmar to better reflect global exchange rates, attract investment, and to weaken the black markets.

The new exchange rate was initially set at 818 kyat to the US dollar and daily rates were to be determined in a managed band at daily bank auctions. At the same time, official sales of US dollars by banks were limited to keep the rate relatively steady.

However, the opposite happened. While businesses – including state-owned enterprises involved in export-import businesses – complained that the banks did not sell enough dollars to them, they had to find other ways of getting get hold of the greenback, catapulting the black market rate up in the process. With it, for the official rate was nothing left to go up too in order to prevent the black market rate from ballooning.

As a result, one US dollar currently exchanges for almost 1,300 kyat, a new all-time high. The currency depreciated against the US dollar by ten per cent since this July alone, after it strengthened slightly for some time following Myanmar’s general elections in March 2016.

The Central Bank of Myanmar has now set up a committee tasked with reining in the depreciation. The committee is meant to  work with government ministries, such as the Ministry of Construction and the Ministry of Industry, which supervise sectors heavily reliant on foreign exchange, are actively involved in import-export operations or help set trade policies, 

Economist say that this will be a hard undertaking as there was a need for more foreign currency supply to enter Myanmar amid rising inflation and fiscal deficits. Myanmar remains heavily reliant on imports across a host of sectors, which is unlikely to change in the next few years.

 

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