Interview: U Kyaw Kyaw Maung
What relationship will the CBM have with the Ministry of Finance (MoF) now it is autonomous?
U KYAW KYAW MAUNG: While the CBM has separated from the MoF, the two institutions will continue as natural counterparts to ensure the consistency of monetary and fiscal policies. The CBM will still function as fiscal agent, whose main task is to maintain a single account for the MoF, through which the state budget is channelled. This is essential to financial oversight, in which the MoF has a strong interest. The CBM will also act as adviser to the government in economic and financial matters. The mode of such communications should be agreed on by both institutions. It is important to stress that the two will have mutual obligations – the CBM to share its views with the government in relevant areas, and the government to ask the CBM’s advice in matters of central banking.
What measures will the CBM take to protect the kyat against speculative investors? How can intervention be used in ways that avoid a volatile reaction?
KYAW KYAW MAUNG: In April 2012, Myanmar switched to a managed floating exchange rate regime, producing a single, market-determined rate. The previous, “auction-determined” reference rate merged with the informal rate, and began to run at around 820 kyat to the dollar. After broadly appreciating through November 2012, the kyat fell significantly over the next year, trading at around 970 kyat to the dollar in late October 2013, 15% lower than when the new system was introduced. The chief causes are high import demand, seasonality of foreign exchange inflows (partly from agriculture) and fluctuations associated with a thin market. In foreign exchange auctions, the CBM has sought to smooth fluctuations, meet demand for foreign exchange and align the reference and informal exchange rates without targeting a specific level. The aim is to increase reserves while supporting the development of formal markets. As recommended by the IMF, we launched the interbank foreign exchange market on August 5, 2013. We continue to work with the Fund to develop it. Our aim is to make prices more transparent.
To what extent do the CBM’s global reserves offer protection to Myanmar’s economy?
KYAW KYAW MAUNG: Myanmar’s official reserves are held both at state banks and the CBM. By traditional metrics, total reserves appear sufficient to provide buffers. Those under direct control of the CBM are only just enough to safeguard external stability, so all reserves held by state banks are to be transferred to the CBM in 2014/15. By another measure, Myanmar’s fiscal shock-absorber may seem to lack enough cushion.
Reserve adequacy metrics for specifically low-income countries – which account for the costs and benefits of holding reserves while adjusting for country characteristics, policy fundamentals, fiscal position, institutional capacity, and so on – suggest, as a baseline scenario, holdings of about five to nine months’ worth of imports, depending on the cost of holding reserves.
That may overstate the case, for three reasons. First, while Myanmar could fall prey to shifts in the current account, changes in the financial account are halted by capital controls and low short-term debt. Second, the model does not take into account that some imports stem from foreign direct investment. Third, the huge need for infrastructure investment in Myanmar means that the opportunity cost of reserves is probably at the higher end, so reserve coverage at the lower end – about five to six months’ worth of imports – is appropriate.
What steps are being taken to introduce credit card services to the general public?
KYAW KYAW MAUNG: The card business regulation issued by the CBM in July 2012 allows the bank to conduct credit token business, but not yet credit card services. The CBM needs time to study how a card market would best work. So far only Myanmar Payment Union is part of the National Financial Switch network, and is working with banks to launch card-based services.
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