The Central Bank has reissued an instruction that the kyat should be used in all local transactions in an effort to help stabilise the exchange rate. But a senior official in the foreign exchange management department has said the regulator also wants to help route more foreign currency transactions through banks. The Central Bank first issued the instruction in May 2015, informing all state and region governments that local payments should only be made in kyat.
“Using foreign currency for payment/receipt for goods and services bought or sold within the country results in dollarization and increased dollar demand, which in turn are causing destabilization of the foreign exchange rate,” said the Central Bank notice.
The bank submitted the instruction to the president’s office for re-issue on December 6, and it was made public on January 3.
“The instruction has been issued before,” said a senior official in the foreign exchange management department, who asked to remain anonymous. “But people didn’t abide by it and so we’ve issued [the notice] again.”
The Central Bank wants to make sure it is clear that it does not discriminate between different sectors – the use the kyat should be applied across the whole economy, he said. The instruction means that government-owned and private entities from hotels and restaurants to airlines and international schools, should use the kyat, he said.
But international payments present a separate problem. Myanmar importers should not be buying their own dollars to carry out international transactions independently. Instead, as Central Bank regulation stipulates, they should take the equivalent amount of kyat to a local bank, which will make the foreign currency purchase on their behalf.
The Central Bank official admitted that at present lenders are unable to provide such services – largely due to a shortage of US dollars, by far the most common currency for international transactions – and the Central Bank is well aware that many importers have no choice but to seek dollars on the informal market. The Central Bank wants to make this a “reality”, the official said, although it will have to happen gradually, and while he hinted at the possibility of more instructions being issued he would not comment further.
U Than Lwin, a senior adviser to KBZ and formed deputy chair of the Central Bank, said that banks were helping traders make foreign currency transactions, but that they were limited by a shortage of foreign currency.
“Sometimes the bank has enough foreign currency [to make the payment for the trader] and sometimes not,” he said. Better cooperation among banks was necessary to help lenders access enough foreign currency to help customers, he added.
The country has a functioning interbank market for foreign exchange, but it falls short of answering banks’ needs. Central Bank daily auctions of dollars are likewise unable to sate dollar demand, given that the economy relies hugely on imports across a variety of sectors.
A separate but related issue is that when the exchange rate between the US dollar and the kyat is volatile it leaves lenders that facilitate US dollar transactions open to exchange rate risk. The Central Bank’s official reference rate moved more than 5 percent in less than three weeks last month.
U Maung Maung Lay, vice chair of the Union of Myanmar Federation of Chamber of Commerce and Industry, agreed that local traders had little option at present but to pay for imports directly in foreign currency.
“There needs to be a situation where businesspersons can make [foreign currency] payment [for imports] with kyat currency [through banks],” he said. His suggestion is a system where a prospective importer approaches a local bank, which in turn applies to the Central Bank – giving details of the importers name and the nature of the transaction – and receives the relevant amount of foreign currency.
“If the Central Bank deals with the foreign currency [needs] it will be ok,” he said, adding that he agreed the kyat should be used more widely.
“In other countries they use their own currency for everything, getting visas from the embassy, whatever,” he said. Fees for the majority of visas for Myanmar are charged in US dollars. “The value of Myanmar’s currency is gradually falling because we don’t value its use [in the local economy],” said U Maung Maung Lay.
But for the kyat to be more widely used there needs to be clear rules and regulations, he said.
“It [won’t happen] if there is no specific law,” he said.