In a Facebook post published on the same day, Mr Turnell explained that the dollar’s continued appreciation is “overwhelmingly a global story” and involves the depreciation of almost all emerging market currencies in the world. As risks rise, investors are now fleeing to the dollar, which is widely viewed as a global safe haven asset, and that is pushing up its value against other currencies. 

Based on Mr Turnell’s estimates, “based on peer currency movements, in excess of 80pc of the kyat’s recent decline is entirely explained by this simple ‘me too’ momentum,” he wrote. Compared against some other emerging market currencies in fact, the kyat’s decline has not been as steep.  

Still, the kyat has fallen more in value compared to the Indonesian rupiah and Indian rupee and that is mostly a liquidity issue, Mr Turnell said. Owing to its status as a frontier rather emerging market, “the kyat is perceived as being less liquid than emerging currencies… and thus carries a higher risk premium,” he said. 

Inflation in Myanmar is also slightly higher than some of its peers, which also impacts the nominal value of the kyat in terms of purchasing power parity, while rising imports have also resulted in an outflow of foreign currency from the country.

“Similarly, local banks have problems in converting physical dollars into dollar nostro accounts, thus limiting the usable supply of dollars to the wholesale forex market,” he said. Nostro accounts are accounts that a bank holds in a foreign currency in another bank.

So why shouldn’t we be alarmed? “Unlike many emerging markets, Myanmar has very low levels of foreign-currency denominated debt so a falling exchange rate here does not replicate the situation, say, of the Asian economic and financial crisis of 1997-98. What caused that crisis to be so serious was falling local currencies and large foreign currency debts. Myanmar does not have much of the latter,” Mr Turnell wrote.

The way he sees it, businesses should “keep calm and carry on. Accelerate all the reforms that are sorely needed for other reasons, and let the exchange rate take care of itself,” he wrote.

Source: https://www.mmtimes.com/news/forex-fluctuations-nothing-be-alarmed-about-turnell.html