Myanmar’s central bank plans to set the country’s new exchange rate at around 820 kyat per US dollar, close to its black market level, as the nation pushes ahead with economic reforms, two officials with private Myanmar banks said on Tuesday.
The change would be a shock for government institutions and state-owned enterprises that have been using the official exchange rate of 6.4, the central bank has said. But broader economic waves are unlikely since an exchange rate around 800 is widely in use.
The bank officials told Reuters on the sidelines of an industry event in Kuala Lumpur, where they were speaking, that the new “managed float” system would have a trading band of plus or minus 2 per cent.
“We are currently in the auction process, and there is a plan to manage the float of the currency at 820 kyat, plus or minus 2 per cent, to one US dollar,” said Aung Kyaw Myo, an official of Kanbawza Bank Ltd.
The central bank had been expected to set the currency around that level as it moves to unify the country’s dual exchange rate in the coming weeks -Myanmar’s boldest economic reform yet as it emerges from decades of isolation. The government is calculating its national budget for the year from April 1 using an exchange rate of 800 kyat per dollar, a central bank official said last week.
The currency reform is a major step in ending market distortions caused by the dual system and improving transparency as foreign investors pour into the Southeast Asian country following bold economic and political reforms in recent months.
But it could also cause some disruptions and anxiety in a country where memories of economic mismanagement are fresh. The sudden cancellation of certain banknote denominations by late dictator General Ne Win in 1987 wiped out many people’s savings and helped trigger a pro-democracy uprising the following year.
The kyat’s unofficial rate, used in most transactions, has jumped from more than 1,000 per dollar in 2009 as foreign money has flowed into the timber, energy and gem sectors. That has hurt many Burmese, from farmers and manufacturers to traders and employees of foreign firms paid in dollars.
“This market-driven reform will boost foreign investment interest,” said Douglas Clayton, chief executive of Leopard Capital, a private equity fund focused on emerging Asian markets. “In terms of growing pains, there could be some imbalances in supply and demand but that will not be unusual in such a transition.”
Since government institutions have been using the official rate, state revenue is underestimated. Some critics say it is likely that vast sums of that money have been kept off the books and quietly smuggled out of the country into offshore bank accounts held by cronies of the former junta.