Currency and Exchange Rates

   Burma's independenceera currency is the kyat. Because of poor economic conditions during the Burma Socialist Programme Party era (1962-1988), the state enforced an official exchange rate of around K6 to one U.S. dollar to prevent its depreciation, with penalties for those dealing in currency on the black market. Confidence in the kyat was undermined by three demonetizations, in 1964, 1985, and 1987, designed to cripple "economic insurgency." During this period, U.S. dollars were used in many facilities, such as hotels and stores for foreign tourists. After the State Law and Order Restoration Council seized power in September 1988, currency exchange was in practice liberalized, with free-market kyats readily available on the streets of Rangoon (Yangon) and other major cities. Post-1988 Burma has had three parallel kyat-dollar exchange rates: the official rate (around K5.5-6.5 to the dollar); the free-market rate, which fluctuates widely in response to economic conditions (falling from K60 US$1.00 in 1989 to over K1,000 US$1.00 in 2005); and a special rate used by the government for payment of customs by foreigners, usually between the official and free-market rates. Although international economists have criticized the multiple exchange rates as an irrational impediment to trade and investment, members of the military elite and black-market entrepreneurs can manipulate them to acquire huge profits. For example, they can use the official rate to change kyats into dollars to buy expensive foreign consumer goods or do business abroad, while ordinary Burmese must use the free-market rate. But when the value of the kyat falls precipitously on the free market, the State Peace and Development Council often arrests currency dealers, accusing them of greedy speculation.

   Burma also has had three different currencies in circulation: kyat banknotes, U.S. dollars ("greenbacks"), and Foreign Exchange Certificates (FECs), which were denominated in dollars and were supposed to be equal in value to them, though in recent years their value in relation to the greenback (i.e., the number of kyat they can be exchanged for) has declined. Upon entering Burma, tourists were required to purchase $200-300 worth of FECs in dollars or a hard currency equivalent, but this practice was abolished in 2003, and the FECs themselves had largely fallen out of circulation by 2005. Sanctions implemented by the U.S. government in 2003 deprived Burmese businesses of easy access to dollars, and there was speculation at the time that another hard currency, for example euros, might be used as a substitute. But as of 2005, greenbacks still functioned as the hard currency of choice. However, Chinese and Thai currencies are widely used in some border areas, such as Kokang in Shan State. The continued fall of the kyat on the free market reflects not only economic ills but also the government's policy of printing money to cover budget deficits. Given paper money's ephemeral value, people have followed the traditional practice of keeping their assets in gold or gemstones; gold shops in Rangoon's Chinatown do a flourishing business. Those who can afford to hoard greenbacks or other hard currency, or invest in real estate (luxury condominiums are popular) and durable goods such as imported automobiles, which can be hired out and provide a steady source of income. The weakness of the kyat and its unpredictable exchange rate fluctuations contribute greatly to daily economic insecurity for all but the wealthiest and best connected.

   See also Economy and Economic Policy, State Law and Order Restoration Council / State Peace and Development Council Era.