YANGON (Reuters) - Myanmar will begin a managed float of its currency from April 1, the central bank said on Wednesday, its first public statement on moves to reform a multi-layered exchange rate regime seen as one of the biggest barriers to developing the economy.
The central bank statement, tucked away at the bottom of page eight of the official New Light of Myanmar newspaper, said the external value of the kyat would henceforth be determined by supply and demand conditions in the exchange market, confirming a March 6 Reuters story.
The Central Bank of Myanmar (CBM) said it would publish a reference exchange rate each day, setting the new system in the context of the government’s efforts to modernise the economy.
Reuters has previously reported that moves towards a unified currency system would start next month, with the exchange rate of the kyat initially set near the present black market rate which is already used for most transactions.
A senior government energy official said on Wednesday Myanmar was moving to a unified exchange rate in place of the official and black market rates that co-exist now.
“We are now using 800 kyat per U.S. dollar for the time being. Starting from April, there will be more exchange rate modifications to come,” Htin Aung, director general of the Ministry of Energy’s Energy Planning Department, told an energy conference in Yangon.
Neither the authorities nor the International Monetary Fund, which is advising the government on the move, have revealed much until now about the exchange rate, given the sensitivity of currency matters.
A civilian government took office in Myanmar a year ago after almost five decades of authoritarian military rule. It has started to open up the economy and implement political reforms.
Aung San Suu Kyi, long-time leader of the democratic opposition in the former Burma, is expected to enter parliament after by-elections on April 1 and if the polls are deemed free and fair, Western countries could begin to ease sanctions.
The central bank statement said the state budget for the 2012/13 fiscal year from April 1 assumed a rate for the kyat “in line with the market exchange rate”.
“A key part of this programme is to unify the various exchange rates and gradually eliminate restrictions on current international payments and transfers abroad,” it said.
The new system would “also allow room for the CBM to influence the market exchange rate”, it said.
The government had used a rate of 800 kyat for the budget, a CBM official told Reuters on March 12.
That level is close to the current black market rate, which is used for most transactions, and as a result some analysts say the impact of the new system around the country may be limited.
The new rate, however, will be a shock to those state companies and agencies that have been using the official rate, pegged at around 6.4 kyat to the dollar.
Two officials with private Myanmar banks told Reuters last week that the new managed float would involve a trading band that allowed fluctuations of up to 2 percent either side of a reference rate.
They said the new exchange rate would be around 820 kyat.
Central bank documents obtained by Reuters earlier this month set out the plans to begin the managed float and develop an interbank money market. From 2013/14 Myanmar would aim to “entirely eliminate” the informal currency market, they said.
The authorities have been holding trial currency auctions this month involving 11 private banks, which have been given Authorised Dealer Licences.
The kyat’s unofficial rate has jumped from more than 1,000 per dollar in 2009 as foreign money has flowed into the timber, energy and gem sectors. That has hurt many in Myanmar, from farmers and manufacturers to traders and employees of foreign firms paid in dollars.
Writing by Alan Raybould; Editing by Martin Petty