Thursday, 21 March 2013 15:35 Mizzima News
Myanmar on Wednesday announced the abolition of its US dollar proxy currency, in the latest step towards economic normalisation as the impoverished former pariah opens to the world.
|Burmese foreign exchange certificates Photo: Mizzima|
More than $30 million worth of Foreign Exchange Certificates (FEC) will be phased out of existence, Finance Minister Win Shein said in parliament, without giving a timeframe for the move.
The currency, introduced by the former junta two decades ago as an alternative to the US greenback—which it officially banned—is no longer required, he said.
“A scheme will be set up to systematically abolish FECs in collaboration with the Central Bank of Myanmar, government banks, private banks and related organisations,” Win Shein told MPs.
Economists welcomed the move, which was expected as part of the country's economic liberalisation.
Many government ministries conduct their financial affairs in FEC, while certain transactions involving customs—including the purchase of foreign imported cars—require the currency.
The kyat is the primary currency of Myanmar and is used everywhere, although many hotels and other tourist-focused enterprises also accept dollars as an alternative.
Sean Turnell, a Myanmar economic expert at Australia's Macquarie University, said the announcement could be a new test of public confidence in the government's handling of the economy.
“In the past, movements like this have caused panics, but perhaps there is greater trust in monetary arrangements now,” he said, adding that those holding FECs would rush to convert them to dollars.
“Depending on when they bought the FECs, many FEC holders might experience a considerable capital loss in kyat terms,” Turnell said.
But Central Bank director general Win Thaw told AFP the move would have little impact because it is now possible for people to legitimately exchange them for dollars.
One financier, who asked not to be named, said: “In the past many people, especially political activists, were imprisoned under a law that prohibited people from holding illegal tender if authorities discovered they had dollars.”
He said the dollar is now widely held by businesses as a result of eased restrictions implemented by the government.
Myanmar's quasi-civilian regime has introduced a series of political reforms since coming to power in 2011 that have caused the West to scrap or freeze most sanctions.
The country embarked on a managed flotation of its currency in April last year, while it has also drawn up new foreign investment legislation in a bid to boost its attractiveness to international business.
Relations with Washington have thawed considerably, culminating in a historic visit to the country by President Barack Obama in November as US firms vie for a foothold in a country seen as a potential major frontier market.
FECs were previously seen as a means for the junta to earn greenbacks from tourists, who were at one point forced to buy several hundred dollars' worth of the certificates when they entered the country.
“Myanmar has experienced a tourism boom since 2011, making the system of foreign exchange certificates a barbaric relic of Myanmar's past economic isolation,” said Rajiv Biswas, an economist at IHS Global Insight.