Devalued Kyat currency stops trade at Myanmar-China border
Myanmar merchants who trade goods across the border with China say their country’s kyat has depreciated so much relative to the Chinese yuan that they are no longer able to stay in business.
The traders typically export agricultural and fisheries products to China and import Chinese consumer and industrial goods and food products to Myanmar.
But the kyat’s value has fallen sharply in recent weeks at the border. At the start of the month one yuan (U.S. $1 = 6.83 yuan) was valued at about 300 kyats. On Tuesday, traders said that the yuan is now valued at around 420 kyats. Both values are significantly higher than the official exchange rate, which was about 274 at the beginning of the month and 307 on Tuesday.
The declining value of the kyat is making Chinese goods too expensive to acquire, and many traders say they are now facing losses.
“We cannot make purchases with the amount of money we get after selling our goods [at the border],” Nay Chi, a trader who works in the border town of Ruili, told RFA’s Burmese Service. He added that some of the traders have not bought or sold anything over the past 10 days due to the unstable situation.
“In the past, it would cost me like 100,000 Chinese yuan [$14,600] for a truckload (of goods), which was equivalent to about Ks 300,000 then. [But now,] we don’t get back that much,” he said. “We don’t make a profit but a loss. And all the money we hold is losing value. Right now, no one is doing business anymore.”
Prior to the dropoff, a bag of Chinese detergent powder cost about 500 kyat. Now it costs between 800 and 1,000. Most Chinese goods have increased in price, sources said.
The instability of the kyat is causing traders to wait for better rates, Zaw Min, the owner of a freight company, told RFA. The instability is therefore not only hurting traders, but the truckers who ship their goods, he said.
“The rate is extremely high. And furthermore, it’s not stable. So, traders will only pay for the goods they have already ordered or for items they need really badly. They won’t make any new purchases,” said Zaw Min.
“We’re freight forwarders, and it hurts when no more orders come in,” he said. “The money changers do not dare sell right now even when we want to exchange money, because they’re not sure what will come tomorrow. They might set the rate of the yuan at 235, but they are not sure they would get the same rate hours later. The exchange rate is rising all the time and those who have yuan are not selling.”
Zaw Min said that the cost of transporting goods at the border has been set according to the current exchange rate, at about 2.5 yuan per kilogram (2.2 pounds). This is about four times more costly than shipping cargo by sea.
A trader who has been working at the Muse border zone for more than 10 years said if this situation continues, it will hurt consumers and traders in the long run.
“Finally, the burden falls on the consumer public. People use cosmetics, consume food products and drink alcohol. They’ll be the ones most affected,” the Muse trader said. “The merchants won’t be able to sell because the consumers can’t buy their goods. … Anyway, it will affect everyone.”
Also complicating matters is a June 30 order by the junta that exports of beans, corn, sesame and other vegetables be paid in dollars.
The junta also changed the kyat to dollar exchange rate from 1,850 to 2,100 on Aug. 5, then instructed traders to change 65 percent of their export earnings into kyats, a move that analysts believe was an attempt to control the dollar market and acquire greenbacks.
The junta’s Central Bank also changed the US dollar exchange rate from Ks 1,850 to 2,100 on Aug. 5 and instructed traders to change 65% of the export earnings into kyats.
Since then, one US dollar sells for about 2,700 kyats in private trading, and the price of yuan at the Chinese border slowly increased to match, the border traders said.
People living in border areas have little confidence in the kyat and prefer to hold yuan due to the junta’s frequent changes in monetary policy. Traders believe that the yuan is strengthening due to lower export earnings.
The traders told RFA they want further relaxation of regulations on exports to help stabilize the price of currency at the border.
Khun Thein Maung, the junta’s acting Shan State economic minister, told RFA Aug. 17 that he is having talks with Chinese and Myanmar district-level officials regarding the exchange rate at the border and other trade issues.
Junta spokesman Maj. Gen. Zaw Min Tun told at a press conference in Naypyidaw on Aug. 17 that the Central Bank is implementing financial policies to address the issue of high commodity prices and economic development.
“From the beginning, our demand for foreign currency has increased as we did not buy domestic products and only relied on imported goods. The trade deficit has also become huge and debts mounted as a result,” he said.
“There is a rise in oil prices, fertilizer prices, food, as well as high inflation due to various conflicts happening in the world. On the other hand, the Federal Reserve Bank has raised its interest rates and the Central Bank is implementing a monetary policy that will help economic growth. We are working on this, and in doing so, some sectors might be affected,” said Zaw Min Tun.
He added that traders failed to keep up with the changing systems as the military council changed its monetary policy to help economic growth.
Exporters have to bear the costs of the rising Chinese yuan, but they have not yet fully received money for their previous exports, and there are difficulties when remitting their export earnings to the junta as required due to the rise in exchange rates, Taing Kyaw, chairman of the Mandalay Region Eel Traders Association, told RFA.
“There are a lot of difficulties currently because the rate is always changing. For example, we can buy the Chinese yuan [at the border] at a price of over 420 kyats, but we can get back only 300 kyats in return [from the junta]. So how do we adjust for the difference between them?” he said.
“When we made the remittances for our export proceeds, the difference in the rates was a little too much.”