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
Ref;
The Global New Light of Myanmar
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