This bill has been posted on the Pyidaungsu Huttaw website and in the following analysis the difference between the existing law and the bill, as well as the weaknesses in the bill, will be examined.
(1) Limited independence of the Central Bank
According to the Central Bank of Myanmar Law (2013), the CBM has the power and duty of administering the monetary stability and monitoring the foreign exchange market, for which the law stipulates that it can act independently.
Nevertheless, the bill includes the provision to declare an emergency period for foreign exchange businesses, as with the existing law. The power to declare lasting not more than three months is given to the Union Government and during this period, the CBM can impose a restraint on the businesses.
This implies a limitation on the independence of the CBM and creates a platform for the executive branch to interfere politically. To avoid this, the power of declaring emergency period should not be given to the Union Government; instead, the power should be exercised by the CBM independently under a mandate from the Union Government. This should follow the example set in other countries, such as decision-making by the Bank of England’s Monetary Policy Committee or the US Federal Reserve (‘the Fed’). If so, the CBM can perform its duties independently and respond to the market in a quick and effective way. See Ananda Central Banks policy brief.
(2) The extent of limitations on the use of foreign exchange
Unlike the existing law, the bill allows pricing and payment with foreign currency for selling, transferring and renting goods and services within the country, in accordance with the rules and directives of the CBM. This may be a stipulation aiming to liberalise the use of foreign exchange in the payment system.
However, it should be questioned to what extent the bill really aims to liberalise, and what the policy position of the government is on this issue. To date it is not clear. In December 2016, the CBM issued a letter in which the trading of goods and services with foreign exchange is forbidden, with the reason given that it may lead to ‘dollarisation’ and instability of the foreign exchange rate. This raises the question of the government’s attitude to liberalising payments with foreign currency within the country. Have the concerns raised in the December letter now been resolved?
(3) Reporting export revenue
The existing law says that a person authorized under licence to deal in foreign currency must examine whether export revenue has entered their bank account during a prescribed period, and report to the CBM as quickly as possible if none has been entered. The bill, however, specifies that reporting must be within one month and to report the unusual situation along with comments, without hesitation. We can assume a good move and as a result, it can enable the availability of statistics on foreign exchange and smoother fiscal management.
The bill precisely defines ‘standard’ and ‘non-standard’ gold. As for the latter, a permit from the CBM is not needed for personal use, and the direct trading in the country. Nevertheless, a permit is required for exporting/importing (and renting/borrowing within the country). Also, a permit is required for possessing, locally trading, borrowing/renting and exporting/importing of standard gold. Permits are also required for trade of all types of gold through alternative trading systems (non-exchange trading venues/brokers/dealers) except when trade is direct within the country.
Even though the bill aims to liberalise the gold market, there is a need to analyse the change from the CBM’s Foreign Exchange Management Rule in 2014. The Rule says that jewelry worth 10 million MMK can be taken abroad but must be brought back on the return journey. If the jewelry is also brought into the country, it must be also taken out again. This implies that the 2014 Rule does not allow the exporting/importing of jewelry including gold. Therefore, it must be watched whether this Rule is amended or not as a result of approving this bill.
Things to be considered
(1) Depositing foreign exchange
According to the bill, those holding foreign exchange must deposit it with a licence-holding authorised person to deal in foreign exchanges, after a certain period of time. It must be questioned whether this could be a barrier to the public who may want to participate in money trading. The fact is that those who earn their salary in foreign exchange and those making the transfer of foreign exchange locally and abroad, are at risk of being exploited through the exchange rate. This should be considered for the sake of consumers.
(2) Responding to the market
Although the bill includes precise provisions about gold, it is necessary to wait and see if there will be an attempt to amend the 2014 Rule. The absence of such an amendment to the Rule will reconfirm the government’s interference in gold markets. The government will then need to think whether a separate law for gold is required, and decide on the necessity of formulating a long-term policy.
(3) Claim mechanism
Those who want to engage in foreign exchange business have to apply to the CBM, which has the power to issue or reject applications. In addition, the CBM can administer penalties for breaching laws, rules and directives. Those who are dissatisfied can appeal to the Supreme Court according to the existing law. But the bill asserts that the final say lies in the Board of Directors of the CBM, which prevents judicial review of administration through the courts.