The Central Bank of Myanmar’s June announcement that all domestic payments must be in kyat rather than foreign currency came as a surprise to many.
Listing prices in dollars is not uncommon among Yangon businesses. Photo: Staff
While the kyat predominates in most domestic transactions, foreign currencies are still widely used. Many tourism businesses targeting foreigners deal in foreign currency,
while importers and exporters make extensive use of dollars, and international companies often prefer their own currencies.
while importers and exporters make extensive use of dollars, and international companies often prefer their own currencies.
Letter 904/2015 from the Central Bank of Myanmar’s Foreign Exchange department posted to its website in June – but dated late May – said government and private sector payments inside Myanmar will have to be in kyat only. While there has been little apparent follow-up to date, officials say this is set to change.
U Win Thaw, deputy director general of the Central Bank’s Foreign Exchange Management Department, said details of the action plan will be announced soon, which will include a transition period toward using only the kyat in domestic business.
Recent volatility in the kyat-dollar exchange rate has made it more difficult to strictly enforce use of the local currency. The kyat has declined about 25 percent this year against the greenback, trading yesterday at K1279 per dollar.
The Central Bank has been cautious about too strictly enforcing the rule during the kyat’s decline, though is now preparing more action, he said.
“We are aware that widening dollar use spoils the country’s economy,” said U Win Thaw. “We will take action step-by-step, and make the policy easy to follow.”
Currently, plans call for a preparation period of perhaps two months before cracking down on malfeasance. The targeted business areas will also be publicly announced before action is taking.
Letter 904 had explicitly called for regional and state ministries to change to kyat payments, as many prefer dollars. However, some ministries have not yet followed the instructions, he said.
“We face some delays and failures in the process in cooperating with other government departments. That’s why we’re planning to do it in a wise, step-by-step, manner,” he said.
Companies say they are still uncertain how they will be affected.
U Nay Lin, vice chair of Myanmar Restaurant Association, said it will encourage its members to use to the kyat as the Central Bank announces the public guidelines, though they did not notice the Central Bank’s previous statements on the issue.
U Tun, general manager of Yangon’s Padonmar Restaurant, said foreigners in particular have been using US dollars for years in the country, though the kyat is still used at least 90pc of the time.
It has helped that international credit cards such as Visa, Mastercard and JCB are gaining in local popularity, allowing for more seamless currency exchange.
“If the Central Bank wants to fairly change this habit, they need to inform the whole tourism society with their new instructions. They also need to inform tourists, because we should not insist to our customers how to pay,” he said.
Restaurants and shops accepting dollars normally set a rate slightly above the official reference rate, generally around K5 per dollar, to cover additional costs of changing money and currency risk, said U Tun. However, no foreigners complain about this slight difference, he claimed.
Experts and businesspeople have said they would like to see more clarity on the rules which were announced earlier this year.
Confusion on the issue may stem from the choice of text of the Central Bank’s Letter 904, which is only a few lines and can be interpreted in various ways, according to Edwin Vanderbruggen, partner responsible for Myanmar at VDB Loi legal and tax advisory firm.
The letter also contains an insufficient number of details necessary to actually be implemented by businesses, for instance no entry-into-force or transition rules, no exceptions for areas such as exporters and tourism businesses, and no guidance on whether contract prices may still be agreed to in a foreign currency but paid in kyat.
“If you want to push through a game change like this, you need a clear and detailed regulation so that those who benefit from the status quo have no excuse not to comply,” said Mr Vanderbruggen. “Such regulation is not yet out there. And as long as this lasts, a lot of businesses will use the lack of clarity to do whatever suits them.”
U Win Thaw said the popular use of the dollar becomes a habit in some countries around the world with weak economies.
Dollars have become an increasingly popular currency in Yangon particularly in tourism businesses such as travel companies and airlines, as well as restaurants, hotels, art and jewellery sales. In addition, it is popular for some cars and real estate to be sold in dollars.
Businesses, particularly those relying on imports, which are denominated in dollars rather than kyat, would often prefer to charge in dollars for domestic retail sales, to reduce currency risk.
U Win Thaw said there is a direct link between this year’s currency depreciation and increased dollarisation.
“Myanmar does not face total dollarisation immediately, but confidence in using or saving kyat will be reduced if depreciation continues,” he said.
The Central Bank has taken a number of steps to support the kyat’s value. The kyat is still down about 3.5pc since the start of August using official figures, but market prices are near to where they were in June.
The Central Bank is also planning to make some exceptions in its rules.
The Myanmar Investment Commission has permitted some foreign exchange trading in its approved investments, and so the Central Bank will excuse foreign investors in contracts and investing in projects as special cases, said U Win Thaw.
Other areas – such as salaries and other payments in foreign companies and embassies, air fares and visa fees – may also received special consideration when the rules are released.
“Because all of these issues are directly related to national economic stability, we need cooperation from the ministries,” said U Win Thaw.
The plans to tackle dollarisation are in addition to attempts to end theblack market of foreign exchange dealings. U Win Thaw said that under the Foreign Exchange Management Law enacted in 2012 and upgraded in May 2015, organisations must have a licence to conduct foreign exchange, with penalties of possible prison time or fines.
“We have found that some people are not learning from the law,” he said.
“Some also take advantage of the law, as this has not been strictly managed by the government.”
News From : Myanmar Times