Myanmar Central Bank Monetary Policy

Topics: Central bank, Foreign exchange market, Exchange rate Pages: 6 (2225 words) Published: August 24, 2013
It can say that the new beginning of the banking sector in Myanmar is started on November 25, 2011. Before this time, Private Banks don’t have any license for foreign currency exchange services. Central Bank is the sole bank who can control the foreign currency exchange, and foreign exchange rate against US dollar was traditionally designated as around 6 Kyats per dollar since 1975 while the market exchange rate fluctuated between 780 and 1,000 per dollar for the past several years. However, since the government transform into Democracy System, the banking policy is also became to start change for the stability of financial and exchange rate with the advice of IMF, World Bank and Asia Development Bank. Myanmar knows that they cannot attract the investors unless they can control the stability of financial status and exchange rate. On April 2, 2012, Central Bank started Myanmar’s boldest economic reform which is ending a fixed rate currency system that has stifled investment and fuelled a black market. After this biggest reform, the developments of the banking sectors are increasing in high speed within one year. In this shot paper, the endeavorment of Central Bank on restructuring traditional monetary policy and its effect on the real economy during the current reform process as a main object of this short paper will be explained. I. Central Bank’s effort on Current Reforming Monetary Policy Traditionally, Central Bank of Myanmar (CBM) is not the totally independent organization and the CBM exists as a department within the Ministry of Finance and Revenue and lacks the operational autonomy required to manage monetary policy in a modern market economy. The CBM relied heavily on direct monetary policy instruments, mainly in the form of reserve requirements and prudential limits on the structure of commercial bank balance sheets. Interest rates have been administratively set for all instruments and maturities, and, until recently, rarely changed. There was no formal interbank market and pervasive controls on banks impeded the monetary transmission mechanism. However, with the assistants of international organization, Central Bank start allowed the eleven private banks for authorized dealing license on November 2011. At the beginning of 2012, Central Bank tried to unify rate of foreign currency as the first time of last 50 years with the aid of IMF, World Bank and Asia Development Bank. It was the initial step to end up the fixed currency system. After using the floating rate policy by Central Bank for two months, the rate of US and FEC (Foreign Equivalent Currency/ Foreign Exchange Certificate) which are earned from export business are keep increasing in the foreign exchange market. Central Bank’s policy seems success as there becomes less difference among different exchange rates gradually. In the middle of July, 11 private banks got the permit for servicing foreign currency account as a first time of their history. Before, only the 3 Government banks handle for this service. Consequently, LC (Letter of Credit) & TT (Telegraph Transfer) and other related services were also available in Private Banks. As her second step, Central Bank started to cut Bank interest rate. Throughout the reform, Central bank already amended the bank interest rate for two times. The current interest rates sit at 10 percent for loans and 8 percent for savings and will be reduced to 6 percent and 4 percent respectively, according to the Central Bank of Myanmar. This would be the third time for the government to cut interest rates since it's forming under President Thein Sein. The higher interest rates have attracted foreign businessmen from the countries like Singapore and Thailand to take advantage of the situation by borrowing money with lower interest rates from banks in their own countries and depositing it in Myanmar's banks. Private Banks also cooperated with Central Bank to create Myanmar Union Payment (MPU) card for the...
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