Two-year Journey of the Central Bank of Myanmar

The head office of the Central Bank of Myanmar in Nay Pyi Taw.
The head office of the Central Bank of Myanmar in Nay Pyi Taw.

By Min Min Zaw (Kalay)

The news team interviewed Central Bank of Myanmar’s Governor U Kyaw Kyaw Maung on their second 1-year performance review.
Q: We would like to know the Central Bank of Myanmar’s main performances.
A: During the two year term of the incumbent government we have managed a measure of domestic price stability in the country and have also provided financial services to unbanked people in remote areas. In 2013, the Central Bank received more autonomy after the President signed the Central Bank of Myanmar Law. Since then the CBM has been working on monetary stability, financial system stability, and payments and settlement system development.

Q: Can you tell us the results of administering financial stability?
A: We adhere to the reserve money targeting monetary policy framework we have implemented. We have laid down an interest rate policy, minimum reserve requirement, an open market operation, and foreign exchange policy as well.

Q: Could you explain to us about the interest rate policy?
A: Currently, the Central Bank Rate is 10 per cent per annum (pa). The Minimum Bank Deposit Rate is 8pc pa, while the Maximum Bank Lending Rate is 13pc pa. We want the interest rates to reflect the domestic market and not for the policy’s sake. The Central Bank will review its interest rate policy based on inflation and the fiscal deficit
Q: Can you explain about the deposit auction?
A: As part of the interest rate policy, if the reserve money increasing rate is greater than the target it is put to deposit auction and the surplus is subtracted. If the reserve money increasing rate is lower than the target it is put to loan auction and the surplus is added. Currently, Myanmar’s macro economy is over the target so we have conducted deposit auctions.

Governor of the Central Bank of Myanmar U Kyaw Kyaw Maung.
Governor of the Central Bank of Myanmar U Kyaw Kyaw Maung.

Q: How did you stabilize the inflation rate?
A: We try to put the total reserve money and the separate reserve money into our target amount framework. The inflation rate in Myanmar averaged 9.99 per cent in 2015-2016 financial year, 6.81 per cent in 2016-2017 financial year, and dropped to 4.61 per cent on December 2017.
One of the main reasons for inflation is that CBM has to print more money to fill in the government spending. To reduce that, CBM and the Ministry of Planning and Finance have cooperated to hold monthly auctions for treasury bills and treasury bonds to private and state-owned banks.
The first treasury bill auction took place on 28 January 2015 and the first treasury bond auction took place on 20 September 2016.

Q: How have you managed foreign exchange rates?
A: We shifted from a fixed exchange rate system to a managed floating exchange rate system on 1 April 2012. We have daily foreign exchange auction and we issue daily reference exchange rates.
We established the Interbank FX market in August 2013. In March 2016 we have also switched to an electronic reporting system for our bank customers concerning their transactions.
The CBM has taken a number of steps to support the kyat’s value and tackle dollarization. One of them includes using the value of the kyat instead of the foreign price value when displaying monetary prices.
Since 10 August 2012, private and public banks have been granted authorized dealer license and money changer license while non-bank entities are granted only the money changer license. Money changers are permitted to deal American USD, the Euro, Singapore dollar, Thai Baht, and Malaysian Ringgit. As of 13 March 2018 we have issued 95 money changer licenses and subsequently opened 425 money changing counters.

Q: Can you tell us what CBM’s king system has done to grow?
A: In July 2017 we put in place new regulations to align Myanmar’s banking standards with international Basel II standards.
It requires financial institutions to maintain enough cash reserves to cover risks incurred by operations.
Domestic banks will not be allowed to take on financial exposure to a single individual or entity of more than 20% of its core capital.

Q: Have there been any reductions on regulations?
A: Again in 2017 we aimed to help manage local banks’ exposure to non-performing loans as risks rise in the financial sector. Banks are now required to convert all their outstanding overdrafts into term loans with a maximum maturity of up to three years. The banks must also submit a term loan management framework approved by the board of directors to the CBM.

KAT 0044 72Q: What has CBM done for financial inclusion?
A: The Central Bank of Myanmar has permitted private banks to open branches in different regions and states for all the country’s citizens to have access to the developing banking sector. We also permitted mobile banking and mobile financial services from banks and non-bank entities.
For the public to obtain bank services with ease, Central Bank of Myanmar (CBM) permitted private banks to expand and open branches. As of end March 2016 there were a total of 1,247 bank branches and during the two-year period 24 private banks had opened 386 more bank branches and at the present there are 1,653 bank branches country wide.
In order to do banking works easily as trade and investment increase with foreign countries, permission was granted to nine foreign banks to open branches in 2015. During 2016, four more foreign banks were permitted to open branches bringing the total of foreign bank branches to (13).
With an aim for mobile operators to provide financial services in addition to banks and financial institutions, two network operators and one non-bank financialinstitution were permitted to provide mobile financial service.

Q. What has been done to combat money laundering and terrorist financing?
A: CBM is working together with partner organisations to conduct Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) prcoesses. It has drawn up a national level strategy and is cooperating with relevant departments and ministries including Ministry of Home Affairs, Ministry of Planning and Finance and Union Attorney General Office to amend the Anti-Money Laundering law.

Q. Explain about works done to develop financial payment and clearance system.
A: Starting from 5 January 2016, CBM and Japan International Cooperation Agency (JICA) is continuing the implementation of second phase technical assistance program for the CBM-NET (RTGS) System to be in line with International Standard.
Starting from February 2018 CBM and Internal Revenue Department worked together for tax payers who had an account in any banks to use the Customer Credit Transfer Function in the CBM-Net System to pay tax online to Internal Revenue Department account in Myanma Economic Bank and its branches.

Q. What is the status of cooperating with international organisations?
A: CBM is working together with International Monetary Fund, World Bank as well as South East Asian Central Banks Centre – SEACEN Centre for banking sector development. Furthermore it is cooperating with countries in the region for the ASEAN Financial Integration process and ASEAN+3 (China, Japan, Korea) Financial Cooperation.

Q. What are measures taken to prevent losses from crypto-currency?
A: Crypto-currency is not a currency backed by gold or any other similar things but a digital currency that is created from mathematical algorithm based on cryptography.
Of the many Crypto-currencies in use, Bitcoin is the most used. Some countries had established regulations to prevent losses from using Bitcoin and other crypto-currency. Japan had defined the payment by Bitcoin and other Crypto-currencies as payment with non-legal currencies according to Japan’s Service Act (2016). Central Bank of China had permitted private organisations to trade Bitcoin but starting from 5 December 2013, financial institutions like bank are prohibited from doing it.
In September 2014, Central Bank of Bangladesh has announced that Virtual Currency users are breaking the Anti-money Laundering Law and are liable to be prosecuted.
Central Bank of India had announced that license was not given to any organisation or company and no one had been given the authority to use Virtual Currencies including Bitcoin. On 13 January 2018, Indonesia Central Bank had designated Virtual Currencies including Bitoinc as non-legal currencies and Malaysia Central Bank also didn’t recognize it as legal currency. Monetary Authority of Singapore has issued advisories to warn members of the public of the risk of investing in Bitcoin as it is not a legal currency and the high possibility of losses in trading it.
In 2016, a company in Myanmar had started to encourage the public to invest and use S-Coin and upon learning of this CBM had issued a notice to banks on 22 December 2016 to increase Customer Due Diligence (CDD) for anyone who contact and work with the bank.
On 9 June 2017, banks were cautioned to follow the guidelines and instructions for AML/CFT processes and to report to the Financial Intelligence Unit if any suspicious financial transaction is found. The banks were also warned that if a bank is found to be used for AML/CFT activities, management action will be taken against it.
Announcement ought to be made against investing and persuading to invest in Crypto-currencies including Bitcoin. The announcement should include the fact that doings so is against the rules and regulations on AML/CFT. Hardware and software for Crypto-currency usage and trade should be banned and websites, mobile software and other intermediary services should be banned and controlled.
The matter of Crypto-currenc y was discussed in the CBM Board of Directors’ Meeting held in 23 February 2018 where a decision was made to report to the President Office and seek permission to make an announcement of not recognizing the usage of Crypto-currency. CBM is continuing the main works and responsibilities to achieve its principal aim. Thank you. (Translated by Chris and ZM)


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