The Central Bank of Myanmar (CBM) has introduced further measures to control remittances of foreign currency. The CBM issued letter – FE-1/789 (CBM Letter) on 21 June 2023 which requires banks to submit to the CBM a list of companies which are intending to buy foreign currency.
Details the banks need to submit to the CBM include information on the buyer and seller of the foreign currency, the type of business they engage in, the source of funds, the use of the funds, and the proposed exchange rate. The CBM will review the submitted information and will need to approve the currency exchange transactions. Along with the approval the CBM can also determine the amount which can be exchanged and the rate which is to be used.
The impact of this new policy has yet to be seen as it has only been introduced. The best-case scenario is that it sets an official market exchange rate for foreign currency transactions alleviating the difficulty faced by businesses needing to use unofficial and at times difficult to determine foreign currency exchange rates. It also provides authorities with the ability to smoothen rapid exchange rate movements.
The potential threat posed by the policy is that it introduces additional restrictions on being able to remit foreign currency out of the country. Previously, businesses wanting to import goods were able to do so if they found an exporter willing to sell foreign currency earned through exports. The currency is exchanged through a bilateral transaction between the importer and exporter (sometimes arranged through banks or third parties) where amounts and exchange rates are agreed between parties. Now with the CBM being able to set the exchange rate and the amounts being exchanged, the CBM can potentially try use this as a mechanism to control the market exchange rate.
While authorities already have several opportunities to intervene to prevent foreign currency outflows, including indirect restrictions, such as tightly controlling issuance of import licences. This new control measure gives authorities a more reactive measure to alleviate pressure on the devaluation of the Myanmar Kyat, potentially at the expense of placing further restrictions on international commerce.