Amid increased isolation and sanctions from the West, the regime is trying to reduce Myanmar’s reliance on the US dollar by promoting the use of the yuan and other currencies.
By FRONTIER
On June 1 the junta decreed that traders pay for overland imports from China only in Chinese renminbi, as part of efforts to conserve its scarce US currency reserves and make Myanmar less dependent on the dollar.
The decree mandated the use of direct bank transfers to pay for these imports. A subsequent announcement from the regime’s commerce department, dated June 23, said these transfers would be possible from August 1. This follows the enabling last year of direct baht transfers to pay for imports at the Thai border.
The department said that, under the new rules, import licences for Chinese border trade required proof of holdings of renminbi, more commonly known as yuan, which can be obtained through export earnings or bought from a Myanmar bank.
The June 1 order was issued by the junta’s Foreign Exchange Supervisory Committee, which was established in April last year to ration foreign currency and avert a balance-of-payments crisis. The FESC is chaired by Lieutenant-General Moe Myint Tun, a member of the State Administration Council, as the junta calls itself, and chair of the Myanmar Investment Commission.
Previously, merchants engaged in border trade made payments in yuan or US dollars depending on what was more convenient. However, those interviewed by Frontier largely welcomed the new policy.
“If traders have yuan and the licences are issued smoothly, doing business will be more efficient,” U Thet Tin Oo, director of Yangon-based import-export business Kyaw Eleven Trading Co Ltd told Frontier. “The use of yuan will also help to ensure that the cost of buying dollars will not rise too much.”
U Min Thein, a rice trader in Muse, a town on the Chinese border in northern Shan State, said exporters like himself also stood to benefit because they could sell their earnings in yuan directly to importers.
He said that when traders exported rice to China in the past they received payment in yuan but had to report their earnings and pay tax to the government in dollars, which required changing the Chinese currency into the greenback.
“The direct use of yuan for some exports started last year. As for imports, the junta has only just started requiring the use of yuan. I welcome this. When we send goods to China we only earn yuan and now that can be sold to importers,” Min Thein said.
However, the junta’s central bank has ruled that only 35 percent of export earnings can be re-sold in this way. The remainder must be converted to kyat at Central Bank of Myanmar rates that hugely overvalue the national currency. These are K2,100 to the dollar, compared to a black-market rate of more than K3,100, and K290.20 to the yuan, which trades informally for K440.
These rates in theory give importers access to cheap foreign currency needed to pay for goods, but in practice, yuan and dollars are rarely available at those prices, and must instead be bought at the much higher market rates.
The Central Bank’s currency pegs have failed to reverse the fall in the value of the kyat since the 2021 military coup, when it traded at about 1,300 to the dollar. They have also damaged trade by acting as an unofficial tax on exports.
Political analyst U Ye Tun, who represented the northern Shan township of Hsipaw in the national parliament between 2011 and 2016, said the rate fixes were “a hindrance to trade and should only be temporary”.
“Other countries that practice a free market economic system do not fix exchange rates. Even China, a one-party dictatorship, sets exchange rates close to the market rate,” he told Frontier.
A sanctions shield?
The junta’s efforts to encourage the use of yuan have not been confined to border trade. In May, the Myanmar Iron and Steel Association was told that import license applications by its members would be prioritised if they used yuan instead of dollars for both sea and border trade with China.
Myanmar needs about 3 million tons of iron and steel a year, and most of this is imported, mainly from China. On June 1, state media reported that this costs the country nearly US$2 billion.
The junta’s moves would be welcomed by Beijing, which is promoting the yuan as an international currency. However, experts say the regime is driven more by concerns over its access to foreign exchange than a desire to curry favour with China, which has continued to provide it with military and diplomatic support since the coup.
“The military council has few opportunities to earn US dollars and its dollar reserves have shrunk,” said a China specialist who requested anonymity. “I think it is because of the dollar shortage that it is switching to using yuan.”
Since 2019, the Central Bank has designated the yuan and the Japanese yen as official currencies, joining the US and Singaporean dollars, the euro, the Thai baht and the Malaysian ringgit. And, since late 2021, the CBM has increasingly tried to facilitate the yuan’s use in trade with China.
The country is Myanmar’s main trading partner. Trade between them in the 2020-2021 fiscal year was valued at more than $9.8 billion and for the first two months of this fiscal year, starting in April, was worth more than $1.5 billion. Of this, exports accounted for about $500 million and imports for about $1 billion, according to the Ministry of Commerce.
But there’s another reason for trying to de-dolarise Myanmar: exposure to economic sanctions from the United States. If tightened, these sanctions could make it harder for the regime to receive foreign income in dollars and use them to buy weapons and other goods it considers essential.
Since the coup, countries like the US, the United Kingdom, Canada, and the European Union have imposed sanctions on the military and its affiliates, and they are under constant pressure from activist groups to adopt further punitive measures.
On June 21, the US announced its latest measures, this time against state-owned Myanma Foreign Trade Bank and Myanma Investment and Commercial Bank, as well as the Ministry of Defence.
Junta spokesperson Major General Zaw Min Htun tried to downplay the news by saying, “These banks have no accounts open in US banks. So there can be no loss of money. We will continue to conduct trade transactions in foreign exchange.”
A few days before, on June 16, Central Bank chair Daw Than Than Swe had said that Myanmar was considering cooperating with the New Development Bank established by the BRICS. The BRICS group, which includes Brazil, Russia, India, China and South Africa, is also planning to launch a new reserve currency to reduce dependence on the dollar.
At an economic forum in St Petersburg, Russia, Than Than Swe said that Myanmar supported the use of a BRICS currency to reduce the use of US dollars in trade. The new US sanctions will likely only bolster that commitment.
“If BRICS issues a new currency and expands its membership, the new currency will certainly challenge the dollar because current and prospective members of the group will have such a large share of world trade, as well as resources,” Ye Tun told Frontier.
But in the meantime, he said Myanmar would be able to further reduce its dependence on the dollar if its trading partners also used the yuan as a reserve currency.
“In the future we may also be able to trade with Thailand and Bangladesh in yuan because they hold reserves in yuan,” he said.
Besides the new measures for yuan and Thai baht, the junta is also trying to enable direct payment in rupees for border trade with India.
The junta’s commerce minister, U Aung Naing Oo, told a business event in the Indian city of Kolkata on June 14 that he hoped negotiations on using the rupee and kyat in border trade with India would be completed by the end of the month, India’s Business Standard daily reported.
At a news conference in September last year, junta spokesperson Major-General Zaw Min Tun said similar plans were underway for the Russian rouble.
“Direct payments in business and trade-related activities will be possible in roubles and kyat, and to implement the system as soon as possible we will use Russia’s MIR card in our payment system,” Zaw Min Tun said.
However, little progress has been announced since then. Analyst Ye Tun expects that countries trying to reduce their dependence on the dollar will do so gradually rather than abandoning it completely, which may not even be possible.
“If Myanmar can use the yuan more, the United States will no longer be able to exert influence on Myanmar’s economy,” he said, referring to the impact of US sanctions.
He added that this would be welcomed by the business sector. “Private companies will no longer have to worry about being targeted by US authorities.”
