The only ways to change dollars for kyats was illegally on the street, at hotels offering inferior rates, through businesspeople seeking dollars to pay for imports or official money-changers where the kyat was fixed at rates considered massively overvalued.
As in the few other countries which have experimented with parallel currencies for foreigners, mostly socialist states, it also created a host of problems, says Than Lwin, the vice chairman of Kanbawza Bank, a private lender who helped devise Burma’s FEC policy.
“We thought the FEC should be issued only for a short while, say for a few years – or around that period – just like the Chinese and Pakistanis had done,” he said. “But, as you know, the FEC became a permanent feature as we dragged our feet, so we did not need to unify the currency.”Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Following a new foreign exchange law introduced this month, Burmese are now legally permitted to hold foreign currencies without a permit for the first time since 1947.
For Burma, it’s another key milestone towards reconnecting to the global financial system less than a year since the country reintroduced ATMs following a banking crisis in early 2003. VISA and MasterCard announced recently they will reenter the country in 2013.
Whether the central bank can withdraw the FEC with minimum disruption will largely depend on its ability to prevent the currency from sliding in value as the general public learns of its demise.
Maung Maung Win says the central bank and the government have for some time discussed how to keep the value of the FEC close to the dollar given that its value has often fallen well below the greenback, a disaster for the tens of thousands of people employed by foreign companies, the United Nations, and aid agencies who are paid in FEC.
“Sometimes we maintain the FEC price,” he said, without responding on whether the government had already started to quietly withdraw the currency from the money supply.
Maung Maung Win would not say how much is in circulation, explaining that he did not want to give potential speculators the chance to play the market. New FEC bills had not been printed for several years, he added.
“We have enough FEC at the central bank,” he said.
Once the currency has been withdrawn, another key test will be how it affects the value of the kyat following a slide of more than seven percent since a managed floated on April 1, more than any other currency in the region, according to Bloomberg News.
Saktiandi Supaat, head of FX research at Maybank in Singapore, says the kyat looks set to continue falling against the dollar.
“This would be beneficial for exporters in the country,” he said. “The question is whether $8 billion of reserves is sufficient to lean against the wind as they allow greater [currency] flexibility.”
Steve Finch is a freelance journalist based in Bangkok. His work has appeared in the Washington Post, Foreign Policy, TIME, The Independent, Toronto Star and Bangkok Post among others.