Amid failing efforts to prop up the kyat’s value, the military regime has resorted to hostile pressure against holders of American dollars, according to analysts and sources in international business.
Since the military council issued a 20,000-kyat banknote last month, commodity prices and the exchange rate for American dollars have shot up, leaving Naypyitaw officials working through the weekends in a frantic effort to craft their response.
On August 19, the governor of the Central Bank of Myanmar (CBM) and other officials held an urgent discussion about currency policy with leading members of the Union of Myanmar Federation of Chambers of Commerce and Industry, representing the most influential interests of the country’s business community.
The next day, the Central Bank of Myanmar (CBM) issued a public statement via regime-controlled newspapers warning against the possession of US dollars.
The statement reiterated the terms of a 2014 regulation permitting citizens within Myanmar to hold a maximum of US $10,000, acquired by legal means, for six months, noting that anyone holding any amount in American dollars for a longer period would be subject to penalties.
The kyat’s precipitous decline against the dollar and the chaotic results for domestic businesses compelled the regime to issue a cautionary reminder about the nine-year-old rules.
According to another statement issued the same day, authorised private banks would be permitted to sell no more than US $500 to any individual with plans to travel abroad. However, one source, who travelled from Myanmar to another country after the rule went into effect, told Myanmar Now that despite complying with the limit set by the junta, he faced restrictions when attempting to purchase dollars from the banks.
During the emergency meeting in Naypyitaw, junta officials discussed plans to arrest and take legal action against speculators, enforce strict regulations against accepting dollars for exported goods, and prosecute those failing to comply with the regulations under charges related to financial fraud and foreign currency speculation.
However, informal exchanges for American dollars have persisted at the skyrocketing rate, which soared to more than 3,700 kyat on August 21 while the junta’s official exchange rate for the dollar remained at 2,100 kyat.
Military council authorities acknowledged these critical circumstances on August 22 at a press conference held in Naypyitaw, led by military junta spokesperson Maj-Gen Zaw Min Tun, where the heads of three junta-controlled ministries and two deputy governors of the Central Bank of Myanmar (CBM), discussed economic plans for controlling exchange rates and the prices of gold and commodities.
Two months earlier, the junta inaugurated the online sales system, requiring people engaged in dollar transactions to conduct trades under the supervision of the CBM. Currently the CBM permits exchanges between 2,920 and 2,922 kyat to the dollar. The junta has therefore had to permit the exchange of dollars at hundreds of kyat higher than their previous designated price.
Zaw Myint Naing, one of the CBM deputy governors, remarked that in addition to forming a gold and currency market monitoring committee, the regime is currently developing an online sales platform to bolster the junta’s exchanges of currency at the official rate.
“All payment systems related to foreign currencies will be made available in the ‘Online Trading’ system. The rate on this platform will reflect the market price,” he said.
Zaw Myint Naing added that the online dollar sales system enables the use of dollars for foreign currency payments, including trade payments, and will serve to stabilise the dollar exchange rate.
During the military council’s time in power, three distinct dollar exchange rates have emerged: the junta’s official rate of 2,100 kyat, the CBM’s online rate of just over 2,900 kyat, and the unregulated, external market rate of more than 3,500 kyat, which the junta is unable to influence.
In addition to controlling the chaotic financial market, the military council has turned to a range of other measures to restrict access to US dollars following the coup.
In April 2022, the regime implemented a scheme that forced the exchange of dollars held in individuals’ and businesses’ foreign bank accounts into kyat, and mandated the conversion of 100 percent of businesses’ export earnings into kyat. At the time, the junta-established exchange rate stood at only 1,850 kyat to the dollar.
Later, starting from August 2022, the regime required the conversion of only 65 percent of traders’ export earnings at a rate of 2,100 kyat to the dollar.
On July 14 of this year, the policy was revised again, requiring the conversion of only half of export earnings, and also requiring conversion for sailors who had earned income in foreign currencies.
The military council also established a requirement for expatriate Myanmar workers to remit 25 percent of their wages back to the country.
The junta has cracked down on currency exchanges in various ways, often closing them for alleged non-compliance with their directives and rules. In March of this year, the foreign exchange licences of some 20 businesses were suspended, and 13 businesses had their licences suspended last month.
One businessman working in exports, who asked that his name be withheld, said the military junta cannot conceal or avoid confronting the scarcity of US dollars despite their attempts to exercise stringent control over foreign income and expenditures.
Saying that the military regime was neither accepted by Myanmar’s citizens nor the international community, he blamed its mismanagement for the chaotic fluctuations in the exchange rate, and said the regime was trying to foist the blame on the general public rather than acknowledge its own errors.
“They refuse to admit responsibility. They don’t accept that this shortage of dollars is their doing. Instead, they accuse businessmen and dollar holders of speculation,” he said.
The junta is also facing difficulties resulting from the United States’ and other foreign governments’ restrictions on its sources of foreign revenue through sanctions.
When, for example, the European Union’s sanctions froze more than US $500 million in foreign currency-denominated profits for the state-owned Myanmar Oil and Gas Enterprise (MOGE), rendering them inaccessible, the military regime tried and failed to sidestep the obstacle by opening bogus bank accounts.
Adding to the regime’s frustrations, the US government imposed sanctions on the Myanmar Foreign Trade Bank (MFTB) and Myanma Investment and Commercial Bank (MICB) in June, severely hindering the regime in conducting foreign currency-denominated transactions.
The Singapore-based United Overseas Bank also began restricting financial transactions related to Myanmar and closed a major Myanmar airline’s accounts at the bank, while Bangladesh’s Sonali Bank froze funds deposited by MFTB and MICB totalling more than US$1 million.
The junta has sold dollars for the purpose of importing two essential commodities, cooking oil and fuel, but has restricted other imports to maintain their reserves.
Some Myanmar businessmen involved in international trade have argued that the military regime will only exacerbate the existing volatility of the dollar exchange rate with its heavy-handed controls, as long as it fails to address the underlying factors contributing to inflation in Myanmar.
According to them, Myanmar has to meet a substantial demand for dollars owing to its dependence on a range of imports, from raw materials to finished consumer goods.
However, the country is failing to raise enough foreign currency from exports, and their controls, conversion requirements, and extraction of export revenues have only incentivised exporters to seek ways to conceal the true value of their earnings.
Furthermore, given its animosity towards dollar holders, the military council is prone to crack down heavily on exporters and online exchanges failing to abide by its rules.
Most exporters are now at risk of incurring penalties as the junta prepares to audit export earnings from 2016 to 2022, according to an economic analyst from Yangon.
Remarking on the environment of insecurity generated by the military council’s enforcement of crippling and unworkable regulations against international businesses, he predicted more would start leaving the country.
“I’m not sure businesspeople won’t simply flock to Mae Sot in large numbers, hundreds of thousands,” he said, referring to a city in Thailand on the Myanmar border. “It’s as if there’s no assurance anymore. If they just arrest everyone, the economy will deteriorate even further.”
