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Myanmar’s Foreign Exchange Market pp 1–22Cite as

Introductory Chapter: Myanmar’s Foreign Exchange Market—Controls, Reforms, and Informal Market

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Abstract

Under extensive controls on foreign exchange and international trade, Myanmar’s foreign exchange market has achieved its development which is characterized by the prevalent informal currency deals. Clarifying how Myanmar has diverted from the premises of the existing policy analyses, we unveil the evolution and functions of its foreign exchange market. Toward this goal, we introduce the concept of an informal interfirm-based market and contrast it with the conventional bank-based market model. By presenting the costs and benefits of informal currency deals, we discuss the rationale for the market reform in Myanmar. Furthermore, understanding the trajectory of the foreign exchange market serves as the basis for an investigation of the root causes of Myanmar’s persistent informal currency deals in the post-exchange rate unification period. This analytical narrative contributes to the literature on foreign exchange policy reforms in developing countries.

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Notes

  1. 1.

    The exceptions are studies on the evolution of forex markets in transitional economies, including those on China (Mehran et al. 1996; Ding 1998) and Vietnam (Nguyen and Nguyen 2009).

  2. 2.

    Apart from these studies, various issues of the IMF’s Staff Reports for the Article IV Consultations provide useful descriptions of foreign exchange regulatory changes for each year. However, they lack historical backgrounds or require readers to have prior knowledge to fully comprehend the arguments.

  3. 3.

    Instead of quoting specific prices, dealers may place limit orders and market orders to brokers. Limit orders are conditional orders that a dealer buys or sells foreign exchange when the market reaches a specified price. Market orders are to buy or sell foreign exchange at the best available price. These allow dealers to gain the information about market conditions from brokers.

  4. 4.

    IMF (2003) classifies the interdealer trade using electronic trading platforms—the electronic brokered system (EBS) and the Reuters system—as an auction market. We categorize them as a dealer market.

  5. 5.

    Malaysia resumed to the de facto peg to the U.S. dollar afterward.

  6. 6.

    The number of participating countries and regions in the 2016 survey is 52. Among the ASEAN members, Indonesia, Malaysia, the Philippines, Singapore, and Thailand participate in the survey.

  7. 7.

    See Grosse (1992) for the foreign exchange black market that trades foreign currency receipts from illegal exports.

  8. 8.

    The settlement risk is low in foreign currency banknote trading because spot transactions can be completed immediately. However, there remains a risk that the banknotes used in a deal are counterfeit.

  9. 9.

    The value of the SDR was based on a basket of major currencies. As the exchange rate of the U.S. dollar vis-à-vis the SDR fluctuated, the exchange rate of the Myanmar kyat—pegged to the SDR—also fluctuated against the U.S. dollar between 5 and 6 kyats per U.S. dollar. In the unofficial market, the kyat depreciated chronically from around 40 kyats per U.S. dollar in 1988 to above 1300 kyats in 2007.

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Authors and Affiliations

  1. Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO), Chiba, Japan

    Koji Kubo

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Kubo, K. (2018). Introductory Chapter: Myanmar’s Foreign Exchange Market—Controls, Reforms, and Informal Market. In: Myanmar’s Foreign Exchange Market. Springer, Singapore. https://doi.org/10.1007/978-981-13-1789-7_1

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  • DOI: https://doi.org/10.1007/978-981-13-1789-7_1

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  • Publisher Name: Springer, Singapore

  • Print ISBN: 978-981-13-1788-0

  • Online ISBN: 978-981-13-1789-7

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

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