Myanmar Central Bank Monetary Policy
Abstract
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
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