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Myanmar’s currency hangs on a thread

People show new currency notes with the portrait of Gen. Aung San, late father of Myanmar leader Aung San Suu Kyi, printed on it, outside Myanmar Economic Bank Tuesday, July 21, 2020, in Yangon, Myanmar. The Central Bank of Myanmar issued another new version of 500 kyat currency note to mark the country’s 73rd anniversary Martyrs Day. AP Photo/Thein Zaw
 
 
 

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Myanmar’s currency hangs on a thread

Since the February coup Myanmar is caught up in a political, social, and economic turmoil with no end in sight. The nation’s currency – kyat – has fallen significantly, while banks keep their doors shut to avoid a complete currency collapse. 

Political chaos and the departure of foreign investment leave Myanmar’s citizens trapped in a financial no-man’s-land – dependent on a currency few nowadays have access to. The question is for how long Myanmar’s currency can hang on.

By Kiana Duncan/Cambodia

MYANMAR Mere days after Myanmar’s February 1 coup earlier this year, a drop in the nation’s currency – kyat – valuation surprised few amidst the political upheaval on the ground. It seemed to be a natural turn of events as foreign investors pulled out and the country’s military took power. 

Sunflower Exchange, a popular exchange service still operating, says they’ve been extremely busy ever since the start of the coup.

“People are so afraid on Myanmar kyat starting from February 1, so the Myanmar kyat value dropped,” a representative of the exchange, which now sells at about 1,550 kyat to the US dollar, told Global Magazine.

“Top performer” in 2020

Amidst the chaos of bank shutdowns, boycotts and rising panic, Asia’s best performing currency of 2020 took a surprising turn, a prolonged stabilisation at the market rate of 1,450 kyat to the US dollar, with a small discrepancy between this and the official rate. 

Similar trends can be seen with other major international currencies, up until just a few weeks ago when it began what’s assumed to be a prolonged descent. But there’s concern that this drop won’t stay steady forever, and that Myanmar’s fragile banking system couldn’t survive a large hit, especially as the kyat has already depreciated about 14 percent since February 1. 

Even still, these aren’t new lows; the kyat reached both an official and market rate of 1,600 to the dollar in late 2018. This time around, though, experts are quick to point out several short-term stabilising factors that are keeping the kyat’s valuation from outright plummeting, including a simultaneous drop in both exports and imports.

Departure of foreign investments 

As foreign investors pull out of Myanmar due to both international pressure and sanctions, they’re finding challenges in the process.

“You can’t really liquidate all the domestic assets so quickly,” a former Myanmar banker, who wishes to remain anonymous, told Global Magazine. “For example, if you’re foreign investors who might want to sell everything you have in Myanmar, immediately, and convert it all to dollars. But literally, there are no buyers of assets in Myanmar at this moment.”

This is certainly the case for beer giant Kirin, who at the detriment of losing a significant sum of its investment and unable to sell its stake in state-controlled MEHL’s Myanmar Beer due to both its plummeting price during boycotts and international sanctions, is attempting to buy out MEHL’s share of Myanmar Brewery as a whole. 

Local citizens hit hard

However, foreign investors aren’t the only ones stuck with local assets dropping in value. In the largely cash-based economy, kyat is necessary for daily transactions, and there are few with the ability to convert their savings into gold or foreign currency, both due to a minority middle and upper class and the limit of cash, both foreign and local, in the economy. 

Jared Bissinger, a consultant for developing Asian economies, including Myanmar, says although the drop is significant, it’s difficult to know exactly how multiple simultaneous disruptions are affecting the exchange market.

“Even if people want to take kyat to dollars, they can’t get kyat out of the bank to do that transaction, and that’s providing this natural limitation on this demand for dollars, which is going to affect the exchange rate,” he told Global Magazine. 

Pre-booked bank visits only

Sunflower Exchange created a Viber group to keep people updated on the steadily dropping exchange rate, but their rate remains on par with the official one, a consistent point of reference for those in the country. 

A representative for the group says that only about 5 percent of bank branches are open to pre-booked appointments and ATMs have a cash withdrawal limit of 2 lakhs, which is about 128 US dollars. 

“The main problem is Myanmar public bank only has a withdraw limitation amount on Myanmar kyat from the bank,” the representative told Global Magazine. “So people choose to buy US dollars, Singapore dollars, Thai baht.” 

“Not equipped for a banking crisis”

For now, much of Myanmar’s slowly sinking value seems to hinge on the inability to exchange money while confidence in the kyat is low. While closure of banks seems to be what’s keeping the country from rushing to exchange their reserves into something more stable, opening banks en masse could lead to a significant drop. 

The anonymous Myanmar banker emphasises that the country’s system isn’t necessarily equipped to handle something like this. 

“If there’s a banking crisis, essentially you’ll be looking at a very sharp depreciation of kyat in the very short term because it might rock the confidence of the monetary system itself,” the banker told Global Magazine.

Facts: Myanmar’s currency

In the summer of 2020, Myanmar’s Central Bank updated the nation’s currency – kyat. Among the changes were the introduction of the face of independence hero, General Aung San, father of Aung San Suu Kyi, on a new 500-kyat bill. The currency shape-up occurred amidst market and stock optimism, at a time when hopes of a politically stable future was still alive – however ultimately crushed in the February 2021 coup, when military clinched power and which besides large-scale political repression against Myanmar’s population also has contributed to a sharp currency decline.

Sources: AP, Coinupdate.com

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