BANGKOK/YANGON -- Myanmar's currency, the kyat, fell to an all-time low this week after the country's central bank reversed exchange rate regulations imposed in August. The depreciation will make it even harder for the government to stabilize the Southeast Asian country's economy, which has been disrupted since the military takeover in February.
On Thursday morning, money-changers in Yangon, Myanmar's largest city, offered a buy rate of 1,900 kyat per dollar and sell rate of 1,930 kyat per dollar, unchanged from the previous day but about 200 kyat lower than a week earlier. On Tuesday, the exchange rate at money changers hit a historical low, while the Central Bank of Myanmar has maintained its lowest-ever reference rate of 1,750 kyat per dollar on its website since Monday.
The kyat slid after the bank scrapped a rule on Friday that had kept the kyat-dollar exchange rate within 0.8% of the reference rate.
In early August, the central bank, at the direction of the military regime, reinstated the regulation for the first time in about three years, requiring banks and money changers to keep currency trading rates within the 0.8% of reference rate. The central bank said the measure was necessary to "keep the exchange rate stable and to keep commodity prices from rising" amid the spread of COVID-19. But the bank later reversed course, scrapping the regulation in a Sept. 10 notification. It has not explained the latest change.
Before the rule was abolished, dollars had traded at around 2,020 kyat on the black market in Yangon, according to local media. Dollar trading had slowed because selling dollars within the official trading band through regular channels, such as banks, meant incurring a loss. Many money changers closed their shops, forcing those who needed foreign currency onto the black market.
With the regulation eliminated, the official rate offered by banks and money changers is expected to converge with that of the black market, more closely reflecting a true market rate and making currency transactions easier, said a person in the financial service industry.
"The abolition of the regulation is surely good in itself, but confusion will continue for some time as there is uncertainty about the level of the market rate," said a person who works at a foreign bank. The person had earlier warned that currency transactions would not be completed as the gap between the official rate and the market rate widened.
But the continuing shortage of foreign currency in Myanmar may continue to weaken the kyat. Prices for imported goods such as gasoline may rise further, depressing living standards.
The central bank issued a notification to exporters on Sept. 3 demanding that they deposit foreign currency paid by importers in their bank accounts and convert any leftover funds into kyat within four months. The directive appears aimed at forcing exporters to provide banks with foreign currency to help build up Myanmar's foreign reserves and bolster the kyat.
Before the military takeover on Feb. 1, the kyat traded for around 1,330 kyat per dollar. With the economic outlook becoming more uncertain, the kyat has fallen 20% to 30% since that time. Bank withdrawals remain severely restricted, leading to a serious shortage of cash, both dollars and kyat.