The Central Bank of Myanmar (CBM) has announced that it has removed a 0.8 percent trading band around a reference rate for the Myanmar kyat in moves that have been welcomed by the business community, according to an article in Frontier. The trading band was set in 2012 when a floating exchange rate was introduced, and since then the CBM has set a daily reference rate based on supply. “It’s good to remove such restrictions, as this is a market economy”, U Than Lwin, an adviser to KBZ Bank was quoted as saying. The move comes as the kyat weakens against the US dollar, falling to 1,510 on August 15, according to the foreign exchange website xe.com. U Pe Myint, a CBM advisor, told Frontier that the trading band had been introduced to ensure stability when the kyat was first floated, but was no longer effective. “Only the banks adhered to the reference rate rule,” he was quoted as saying. “Money changers and other foreign exchange dealers never followed the instruction, so for a long time it has been useless”. In times of rapid depreciation of the Myanmar kyat, as has happened over the last weeks, the black market and dealers typically move away from the CBM rate. Banks on the other hand are forced to adhere to the CBM rate and, therefor, only buy foreign currency and restrict their sales. Therefore, removing the trading band around a reference rate should come with enforcement that banks have to buy and sell USD in adequate volumes.
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