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November 15, 2018

Parity work conducted between CBM reference exchange rate and market exchange rate

Director-General
Daw May Toe Win.

Since mid-June, the American dollar has been appreciating against the Myanmar kyat. In 2017, the exchange rate of the kyat against the dollar had been stable at Ks1,350 to a dollar, but it started to rise around mid-June.
On 25 June, it was at Ks1,370 and on 27 June, it increased to Ks1,404— an increase of Ks20 to 30 within a period of two days. On 2 July, it decreased to Ks1,388 and then rose again to Ks1,398 on 10 July and Ks1,405 on 11 July—an increase of some Ks17 within a ten-day period.
The Central Bank of Myanmar (CBM) Foreign Exchange Management Department Director-General Daw May Toe Win said, “At the moment, the kyat has depreciated against the dollar, and so have the currencies of Myanmar’s trading partner countries, so there is little effect on the economy of Myanmar.”
Following is the transcript of an interview conducted with Daw May Toe Win:
Q: What is the effect of the instability in the exchange rate between the Myanmar kyat and the US dollar on the economy of Myanmar?
A: If the exchange rate rises, the Myanmar kyat will depreciate and if the exchange rate decreases, the Myanmar kyat will appreciate. When countries trade, the import and export of products are shown in foreign currency (US dollar) and any increase or decrease in the exchange rate will have an effect on the country’s exports and imports. Due to the depreciation of the Myanmar kyat, Myanmar’s exports have become cheap, while imports have become more expensive. Thus, more exports are encouraged. But at the moment in Myanmar, imports are greater than exports, so more expensive products are being imported, causing costs of imported goods to rise. This also increases inflation.
Depreciation of the Myanmar kyat could affect the country’s economy, but the currencies of our trading partners are also depreciating, so the effect on Myanmar’s economy is still low.
Fluctuation of the exchange rate between the Myanmar kyat and the US dollar does not have only a negative impact on the country’s economy. There are some positive effects, such as making our exports cheaper (and more competitive). But the unstable exchange rate is less attractive for foreign direct investments (FDI), so FDIs can decrease.
The exchange rate between the kyat and the dollar is also dependent on the exchange rate fluctuation of Myanmar’s trading partner countries’ currencies. At the moment, the dollar is appreciating and due to changes in the trade policy of the United States, exports of China, the main trading partner of the US, are also decreasing, causing the value of the Chinese yuan to decrease. As China is the main trading partner of Myanmar, the depreciation of the yuan is also affecting the value of the kyat.
Q: What is the Central Bank of Myanmar doing to stabilise the exchange rate?
A: The Central Bank of Myanmar is regularly monitoring the foreign exchange market and is strictly controlling any currency trading that could destabilise the exchange rate. Starting from mid-April 2012, a Managed Floating Exchange Rate Regime was practised and the reference exchange rate of the kyat was based on the auction conducted by the Central Bank of Myanmar. For the exchange rate to be based on the actual market rate, Myanmar entered into the Interbank Market in 2013 and there was some market development.
At the moment, the participation of banks in the auction has decreased and from the second half of 2017, as per the suggestion of IMF, the daily reference exchange rate was based on the Interbank Market. Since the reference exchange rate of the Central Bank of Myanmar is mainly based on the Interbank Market, it would be in close parity with the market exchange rate.
When the auction started to control the rate fluctuation, a trading band of +/- 0.8% was set. However, quite frequently, this does not reflect the market rate and encourages illegal foreign currency trade, having undesirable consequences. A plan is underway to remove the trading band.

 

  • Interviewed by
    Khin Maung Htwe

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