Myanmar launches new currency system

YANGON (Reuters) – Myanmar will launch a new currency regime on Monday that will bring in a managed float of the kyat, a senior banker said, outlining the boldest economic reform yet as a civilian government opens up the country after years of isolation.
The Central Bank of Myanmar (CBM) has published little so far about the new system. It has announced that the currency regime would change from April 1, which is the start of a new fiscal year but also a Sunday, when commercial banks are closed.
The CBM is expected to announce a reference rate for the kyat against the dollar at around 9:30 a.m. on Monday (0300 GMT) after banks put in bids at an auction, the banker told Reuters on Saturday, declining to be named because he was not authorised to speak to the media.
“April 2 will be the first day of the auction,” he said.
In the auction, banks can make up to six bids each but are committed to their rates, if accepted by the CBM.
Banks will then be allowed to buy and sell the currency in a trading band 0.8 percent either side of the reference rate.
A band of 2 percent on either side of the reference rate had been planned but that had been changed after a meeting between the central bank and commercial banks this week, the source said.
The new rate is expected to be near the recent black market range of 800 to 820 kyat per dollar, which is already used for most transactions in the country.
An official rate of around 6.4 kyat to the dollar has been used in the past by the government and some state firms, although the budget for the coming fiscal year was set using a rate of 800.
LENGTHY PROCESS
The process of unifying the rates could take two to three years, Maung Maung Win, deputy governor of the central bank, told Reuters on Thursday.
The overhaul of Myanmar’s dual currency system is the centrepiece of dramatic economic reforms as the Southeast Asian country opens up to democracy and foreign investment.
The banker said 11 banks had taken part in a trial auction with the CBM earlier in March and these would be taking part in the auction on Monday.
Maung Maung Win said 11 private banks plus three state-run banks would initially take part and there were plans to include an additional eight private banks.
Although auctions will be held every business day at the start, Maung Maung Win said the central bank hoped they would not be needed every day once the system was up and running, although it was not clear when that might happen or what the reasoning was.
State firms are the main beneficiaries of the existing currency regime. They use the official rate of 6.4 kyat to the dollar for their imports, compared to the black market rate of about 800 used by other businesses and ordinary people.
The government may extend subsidies and loans to state firms to cushion them from the impact of the new exchange rate regime, Maung Maung Win said.
He said disruption to economic activity from the reform was expected to be limited as state firms only make up about 10 percent of the economy.
The kyat’s unofficial rate has jumped from more than 1,000 per dollar in 2009 as foreign money has flowed into the timber, energy and gem sectors. That has hurt a swathe of Burmese, from farmers and manufacturers to traders and employees of foreign firms paid in dollars.
“Some entrepreneurs in fisheries say they can only continue business above 900 (kyat to a dollar). For other traders in beans and pulses it is 850 to 900,” said the bank source.
“(The new rate) cannot please everyone but higher or lower is not the matter. The only thing is not to have a lot of fluctuation, but to have it stable so businesses can make adjustments as necessary,” he added.
(Writing by Alan Raybould; Editing by Ed Lane)