CNI News
18 August 2022
The depreciation of Myanmar kyat and reduced kyat holding have raised questions on where the currency has been flowing into.
With the economic downturn due to political instabilities in Myanmar and the appreciation of foreign currencies, Myanmar kyat is depreciating and inflation has risen.
The Myanmar public has lost confidence in the kyat and buy gold and US dollars in the black market or purchase property.
The flow of the kyat into the property market is not beneficial for the economy in the long run, Economic Observer U Htay Aung Kyi told the CNI.
He said, “Where has Myanmar kyat gone to? Extremely rich people hoard US dollars. Even if they cannot get it in the official market, they buy US dollars in the black market. Those who are worried about government action hoarding US dollars buy gold. So, Myanmar kyat has gone to foreign exchange and gold industries. Those who do not buy US dollars or gold purchase property. Excessively investing in the property market is dangerous for the economy in the long run. It can lead to property bubble bursts similar to what happened in South Korea, Thailand, Malaysia and Indonesia in 1997. Generally speaking, excessive investment in the real estate market is not beneficial for the economy in the long run.”
Academy gold bars.
Due to political instabilities in Myanmar, many people are withdrawing their deposits from banks and buy US dollar, gold or property to avoid concerns caused by holding Myanmar kyat.
In early August, the local gold demand increased dramatically, pushing up prices to MMK 2.8 million per tical and setting new records.
As Myanmar kyat has depreciated and people hoard gold, the kyat has flowed into the gold industry, according to gold market researchers.
There are speculations that a large sum of Myanmar kyat has gone into the gold market as buyers purchased the precious metal by visses.
Deposits at a bank.
Ko Nay Lin Khant, a gold market researcher, told the CNI, “Myanmar kyat circulates not through bank transfers but through cash payments. So, a large sum of Myanmar kyat will flow into the hands of gold traders and goldsmith shops. When the supply is low in the market because gold mining halts during the rainy season and the demand rises, gold hoarders will resell their precious metal and prices will fall. They will resell their gold if they can get a little profit.”
U Htay Aung Kyi told the CNI that facilitation of the trade and investment sectors is important to reduce inflation and streamline the circulation of Myanmar kyat.
US$ notes.
He said, “It is important to improve the business environment. The economy must be running normally and trade must be conducted as usual. Confidence in trade and investment must be restored for the economy to recover. So, favourable business, political and legal environments are essential for economic recovery. Another important factor is the economic environment like exchange rates, inflation rates, interest rates. The interaction of the three rates must be in a favourable position for the country.
Public confidence in banks is also important to reduce the impacts of the depreciation of Myanmar kyat on the economy and it is necessary for banks to make cash withdrawals easier, according to businesspeople.
