Myanmar revokes forex licences to control ‘dollarization’

Monday, 19 October 2015 00:00 - - {{hitsCtrl.values.hits}}

YANGON (Reuters): The Central Bank of Myanmar (CBM) has revoked foreign exchange licences issued to hundreds of businesses ranging from hotels to hospitals, in a bid to control ‘dollarization’ and increase the value of the ailing kyat currency.

The CBM sent an official letter to the licence holders last week, a copy of which was seen by Reuters, telling them to return their licences between 19 and 30 October.

The licences, which allowed businesses to access US dollars, encouraged people to use the historically more stable currency for domestic transactions more conveniently after bypassing the local financial system.

“(The cancellation) is intended to promote the use of kyat in making payments for goods and services within the country and to cut down the use of cash by encouraging domestic debit cards and credit cards, internal payment cards and on-line payment system,” the letter said.

A CBM official told Reuters the licences had initially been issued to the businesses to help them carry out transactions conveniently.

“But it led speedily to dollarization, causing an unstable exchange rate and weakening the kyat in the local market. We’ve decided to revoke the licences after consulting international experts, including those from the IMF (International Monetary Fund),” said the official, who declined to be named.

The kyat has fallen more than 20% so far this year, making it one of the worst-performing frontier market currencies in 2015.

According to the CBM letter, all hotels, travel agencies, restaurants, duty free shops, airlines, hospitals, freight forwarders, telecom enterprises, media, apartments, super markets, souvenir shops, gold clubs and the military-owned Myanmar Economic Holding Ltd. will have to give back their licences.

“In fact, it’s nothing strange. You have to make payments in local currency in every country,” said Than Lwin, a top official of KBZ Bank, Myanmar’s biggest private bank, and a retired vice governor of the CBM.

“Frankly, the CBM should have imposed this measure much earlier,” he told Reuters.

Economist Khin Maung Nyo said the revocation of licences would take some time to have an impact on the local currency, but would likely spur demand for US dollars in the black market.