Issuing Kyat 5,000 notes, signs of monetary erosion: expert

by Mungpi
Friday, 25 September 2009 19:20

New Delhi (Mizzima) - The surprise announcement to issue new 5,000 Kyat notes on Thursday by the military rulers, signals a serious erosion of the Kyat through inflation, and could cause a sharp fall in the value of the Burmese Kyat, an economic expert said.

Sean Turnell, Professor of Economics at the Macquarie University in Sydney, Australia said the announcement “signals above all the serious erosion of the Kyat through inflation. The issue of the new larger denomination note is official recognition of this.”

Burma’s state-run television on Thursday evening announced that a new 5,000 Kyat note would be in circulation from October 1, and all legal tender currency notes and coins will also continue to be in circulation.

The announcement, which came as a surprise to the people, also sparked apprehension of rising prices of commodities in anticipation of the soaring inflation rates. On Friday, traders in Rangoon said, the price of gold rose sharply to 600,000 Kyat (US $ 600) per Kyattha (1.63 gram), a rise of 24,000 Kyat from the earlier price.

“I predict a sharp fall in the value of the Kyat in the unofficial exchange market, as people moved into $US and other currencies whilst they see how the new currency pans out,” said Turnell, who has long monitored Burma’s economy.

He said people are likely to be apprehensive because of Burma's problematic monetary history, and the very destructive 'demonetisation' episodes that caused people to distrust the issue of new denominations.

“In the past, these [issuing new notes] have usually been accompanied by declarations that other denominations are declared to be no longer legal tender. So, people have a right to be nervous whenever something like this happens,” Turnell added.

Meanwhile, sources on the Sino-Burma border said, following the announcement on Thursday, traders were seen buying Chinese Yuan to be stocked causing a further fall of Burmese Kyat to 170 per 1 Yaun from the previous 160.

But in Thailand and Indian borders, traders said trade remained normal with the money exchange rates remaining more or less stable. Currently, the exchange rate between India and Burma is 21.5 Kyat per 1 Rupee. The exchange rate between Thai Baht and Kyat is 31 Kyat per 1 Baht.

While the announcement reaffirms the devaluation of the Kyat, Turnell said, the big notes would help people, who are used to large scale day to day transactions.

Turnell said, while it would be interesting to think what people will use the notes for, “One thing is certain - not as a 'store of value', since I think there is still widespread distrust in all Kyat money forms in Burma.”