Central Bank of Myanmar orders government agencies to stop using foreign currency

Beat ASEAN | Economy | South East Asia

The move is aimed at further tightening the junta’s control over foreign currency flows, amid Myanmar’s widespread economic crisis.

On Wednesday, as part of the latest move to shore up its shaky currency, Myanmar’s central bank ordered ministries and other government agencies to stop using foreign currency for domestic transactions.

In a statement, Win Thaw, deputy governor of the Central Bank of Myanmar (CBM), said the use of foreign currencies for domestic payments could lead to increased demand for dollars and instability in exchange rates.

“Myanmar kyat currency should be used in national payments and respective ministries, regional and state governments…. should instruct your organizations if necessary,” said Win Thaw, who was appointed to his post after the February 2021 military coup. practice of receiving and disbursing foreign currency for goods and services purchased in the country”.

Myanmar’s economy has been in disarray since the military takeover, ending a wavering experiment in political reform. The coup sparked large-scale street protests and work stoppages, leading to violent crackdowns by the military junta and disruption of essential services like telecommunications, banking, health and education. Western countries have also re-erected the wall of sanctions that they gradually lifted over the decade of reform.

As a result, the World Bank estimated that Myanmar’s economy shrank by 18% in the fiscal year ending September 2021. The Bank forecasts a paltry 1% growth this year, a figure that apparently has nowhere to go but down, as the armed conflict continues to spread. Across the country.

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The foreign currency ordinance is the latest in an effort by the military administration to exert greater control over foreign currency flows and shore up the fragile value of the kyat, which has seen sharp swings in value since the coup. From a black market rate of 1,330 to the US dollar at the time of the military takeover, the currency plunged to an all-time low of 2,200 in September 2021, after the CBM scrapped a rule that kept the rate of loose US dollar-kyat exchange. indexed to the bank’s reference rate. The rate has since stabilized at around 1,800 kyats to the dollar.

The order came after the CBM last month ordered banks and other foreign currency holders to convert such deposits into kyats, giving foreign currency holders one day to exchange their holdings for kyats at licensed banks. The central bank said that in the absence of a special exemption, foreign currency transfers abroad can only be made through licensed foreign exchange banks. The extreme move prompted immediate protests from foreign businesses and chambers of commerce in Myanmar, forcing the CBM to exempt a range of foreign entities from the rule.

In a broader sense, the order marks another step backwards towards the toxic mix of Old West capitalism and economic autarky that existed under the former military dictatorship before 2011. It is clearly a decision born out of desperation. Even if he succeeds in easing the country’s currency crisis, he is unlikely to have much impact on the military junta’s long-term survival.

Ashley C. Reynolds