With the kyat near record highs against the US dollar the business community is demanding that the Central Bank and the government take action to stem the slide and protect the currency from future volatility. U Win Thaw, director general of the Central Bank’s Foreign Exchange Management Department, spoke to The Myanmar Times about the factors he believes are putting pressure on the kyat and what the bank can do about it.
The kyat has lost over 11 percent of its value against the dollar since July, what’s behind the steep fall?
The dollar is strengthening while the kyat is weakening. Other international currencies have also depreciated against the dollar. The US dollar index [a measure of the dollar’s strength against a basket of foreign currencies] has risen and fallen in recent years, but has strengthened significantly since November. [The kyat’s decline] is a reaction to [developments] in other countries.
Another factor is [Myanmar’s] trade deficit – imports are larger than exports – and this is something that we [the Central Bank] can’t solve. In practical terms it’s about the current account. If there was as much coming in as going out then we could control serious rises and falls in the dollar exchange rate.
But in the current situation [where the current account deficit is rising] the dollar will rise continuously – no one person can control it. But [the exchange rate] can be controlled by [improving] the country’s economy. Budget deficits, inflation, GDP growth rates, we need to consider all these factors.
Another issue is offshore accounts. Money has been kept abroad in offshore accounts, because of which exporters can claim they only received half of their actual export proceeds and keep the rest abroad. The owners of these accounts speculate on the dollar when the exchange rate shifts, so the value of the dollar has increased more than it needs to.
The main problem is the dollar’s value has risen very rapidly, which should not happen, and this has affected people working in the export and import businesses. Not only has the US dollar index increased, but the black market has influenced [the exchange rate]. The government should deal with this by investigating who is responsible for the speculation and finding a way to deal with them, but [the authorities] have been unable to do this so far.
There are many domestic and external factors [in dealing with the currency], I’m simply listing some issues out of many. Some can be controlled, but no country can control when and for how long the [exchange rate rises].
How should the Central Bank and the government respond to stabilise the dollar exchange rate?
The immediate thing the Central Bank and the government can do is to examine imports and exports. We must stop unnecessary imports for a set period. If we do, then the outflows [of dollars] will be lower. Import lists must be reviewed. We have monthly value-based import statistics from the banking sector for every year. After that review, we can know which imports are not necessary, which imports should be stopped, and on which imports we should raise import duties.
We also need to make sure that export proceeds are returned to Myanmar. To do this we can examine the export incomes in the banking sector. There are [a high volume] of exports at the Thai and Chinese border areas, [where the proceeds] are not [processed through the] banking sector.
The informal market [for currency exchange] is large. What the Central Bank can do is to control the [activity] of people keeping export proceeds in overseas accounts, which they use to speculate. There are export proceeds from border trading that do not come back into the country. For example, an exporter will say they received $500,000 even though they really received $1 million, and keep the rest of the proceeds aboard.
Now we are in the process of finding a way to get the foreign currency from those exports [into the banking sector]. A China Border Committee has been formed, [which shares members with a] currency volatility committee. The Central Statistics Organization [under the Ministry of Finance and Planning] and other related departments are also investigating the impact of inflation and the budget deficits on the exchange rate.
How will the Central Bank deal with the overseas accounts?
There is a law for taking action if export proceeds are not [deposited in a Myanmar bank account], and the Central Bank is looking into this. The bank needs to [make sure] border export proceeds come back into the country. Traders, the relevant banks and the foreign countries should all discuss how to deal with this.
The Central Bank is now looking at how to get the money in these offshore accounts back into the country. According to the Central Bank’s Foreign Exchange Management Law, people that have overseas accounts must send the monthly balance of these accounts and their bank statements [to the Central Bank]. We have not implemented this regulation yet. After implementation we will check they are not speculating with their overseas accounts and whether trading can be done without offshore accounts in the future.
When will the Central bank implement these rules for overseas account holders?
First, there should be a public announcement and an education process so the public understand. Having to inform the Central Bank about an overseas account does not mean the Central Bank will take action against the account holder. People faced sanctions in the past and they opened overseas accounts because they could not transfer money abroad from a Myanmar bank account. As Myanmar banks were tightly sanctioned, they could not open overseas accounts [for customers]. So people opened accounts in Singapore and other places. The Central Bank should accept that people can transfer money from their bank accounts overseas. But those people should be educated to help build trust [in Myanmar’s financial sector] and cooperate to help stabilise the economy.
You can open an overseas account with the approval of the Central Bank. Nowadays some banks are aware of this and they have been allowed to open accounts [after informing the Central Bank].
Can the authorities really control the dollar exchange rate to some extent?
If the things I mentioned above are done then yes, it can be controlled to some extent. If you sit and do nothing, it will continue rising. Some unethical businesspeople will keep taking advantage of [the volatility].
There are some actions which can be taken immediately. The respective ministries, the government and the Central Bank can cooperate and control the rise so that it is steady and normal. But this is still being arranged and hasn’t been implemented yet.
[At present] the Central Bank and respective ministries are holding regular meetings on the relevant matters. We have a meeting. We come back. We make decisions. We hold another meeting. [But] such meetings are not effective, and we will only be able to implement short-term and long-term solutions after we hold effective and decisive meetings.
