As part of Myanmar’s path of economic liberalisation embarked on a decade ago, Myanmar moved away from a managed exchange rate, through a managed currency float. Starting from April 2012 Myanmar had an exchange rate set by the Central Bank of Myanmar (CBM) which was based on the market exchange rate with some restrictions on fluctuations. In 2018 foreign currency transactions were fully liberalised with restrictions dropped that foreign exchange transactions must be carried out within a 0.8% range of the CBM reference rate. Further liberalisations in 2019 meant that the reference rate was calculated by the CBM based on foreign exchange transactions in the interbank market and was only meant to be an indicative rate for foreign exchange market participants.
The Myanmar financial sector is currently under significant stress, including a liquidity crisis and a significant drop in the amount of foreign currency available in the Myanmar market. These and other factors have put significant pressure on the Myanmar Kyat, causing the CBM to intervene by setting the exchange rates rather than allowing them to be purely set by the market. It also issued a number of directives, the most recent one requiring banks and money changers to exchange funds at the CBM set reference rate with a maximum spread of +/-0.8%.
This quickly led to the development of a black-market currency exchange rate different from the CBM reference rate. Effects of this were that businesses which earned dollars were discouraged from exchanging them into Myanmar Kyat at banks which used the official exchange rates leading to a reduction of the domestic dollar supply, causing operational difficulties for any business required to import goods and materials.
On 10 September 2021 the CBM issued Directive 12/2021 dropping its policy of foreign currency exchange transactions to be based on the reference rate and have allowed banks and authorised money exchange businesses to set their own rate.
This should bring some relief to businesses as allowing banks and money changers to change currencies at market rates will hopefully increase foreign currency supply. Although this will help provide some relief it is likely that a shortage of foreign currency will continue as the underlying pressure on the financial system remain.
Other than the foreign exchange supply issue, if there remains a significant divergence between the market exchange rate and the CBM reference rate, businesses need to be mindful how this impacts agreements which they have entered which use the CBM reference rate as the given exchange rate as this may continue to be different from the rates available on the open market.
The impact of this change in policy is already evident, on 15 September 2021, a few days after the change in policy the CBM reference rate is MMK 1,750 for 1 USD, which is similar to the buy / sell spread of MMK 1760 / 1765 quoted by a state-owned bank, while a typical buy / sell spread quoted by private banks is MMK 1890 / 1905 and money changers offering a buy / sell spread ranging from MMK 1880 / 1925 to MMK 1935 / 1995.
Comentarios